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If you need money to establish or expand your small business, you might like to consider the Canada Small Business Financing Program (CSBFP). These loans are backed by the government, so you can get access to funding you might not be able to qualify for on your own. They also come with some of the most competitive interest rates on the market.
Find out more about how these loans work, what you can use them for and which businesses might be eligible.
A Canada Small Business Financing Program (CSBFP) Loan is a loan that’s partly backed by a government guarantee. This means that if you can’t pay back the loan for some reason, the Canadian government will assume and repay a portion of the debt you owe.
You’ll be able to use the money you borrow to purchase or improve business assets like land, buildings, equipment and leasehold agreements. However, you won’t be able to use the loan to fund day-to-day operations like payroll, inventory or other expenses.
Who can qualify for a CSBFP loan
Since CSBFP loans are issued directly by the bank, it will be up to them to set specific eligibility requirements for approval. That said, the Canadian government requires you to meet the following criteria to qualify with the bank before they can even begin their own process.
Business status. Your business must operate (or be about to operate) in Canada.
Annual revenue. You’ll need to make less than $10 million in gross revenue in the year you apply.
Business type. You must be a for-profit business, which means businesses like farms, charities and religious enterprises won’t be eligible.
Loan use. You’ll only be able to use loans to purchase and improve eligible business assets.
From there, it’s up to you and your lender to negotiate the amount of financing you’ll receive. Keep in mind, the maximum loan amount you can get is $1,000,000.
How do CSBFP loans work?
CSBFP loans work like any traditional business loan from a bank – but they often come with more paperwork and eligibility criteria. When you apply, the bank gets to decide whether you qualify and how much money you should receive. The government doesn’t get involved in this decision-making process nor does it process loan applications.
The role of the government is to provide the bank and the borrower (that’s you!) with a guarantee that it will help repay a portion of your loan if you default. Because of this, banks are more likely to give you a larger amount of money than they typically would if you were applying for a loan on your own. That’s because they know the government will pay them back if you can’t make your payments.
Interest and fees
Interest rates can be variable or fixed. For a variable rate, the maximum chargeable rate is the lender's prime + 3%. For a fixed rate, the maximum is the lenders' single family residential mortgage rate + 3%. You’ll also face a one-time 2% registration fee, plus the lender may charge any fees that they would typically charge for a conventional loan of the same amount.
How much of my loan will be guaranteed by the government?
In some cases, the government may guarantee up to 75% of your loan with a CSBFP loan. But you could also be required to back a part of your loan with your credit score or some form of collateral. This means you will still have financial consequences for defaulting even if you don’t have to repay the full amount of your loan.
Where can I get a CSBFP loan?
You can get this type of loan from qualified banks, credit unions, caisses populaires and other financial institutions eligible to make loans under the CSBFP. You may need to submit a business proposal before you can be approved in addition to other eligibility criteria.
You can visit Canada’s Business and Industry website for more information about the program requirements and criteria. Also keep in mind that you’ll probably need a good or excellent credit score to apply, and you’ll have to fulfill additional criteria with your bank.
Is a CSBFP loan right for my business?
Whether a CSBFP loan is right for your business depends on what kind of business you have as well as what you intend to spend the money on. The following is a list of some of the factors you should look at before you lock in this type of loan.
Consider a CSBFP loan if
You’re looking to purchase assets. This loan will allow you to buy equipment, software, property and other assets for your business.
You want low rates. With a government-backed guarantee, CSBFP loans offer some of the best rates on the market.
You need a large amount of money. Loan amounts can be as high as $1,000,000, depending on what you need the money for.
You have good credit. These loans will require a good to excellent credit rating if you want to qualify.
You can contribute your own capital. You’ll need to be able to fund a portion of your purchase out of your own pocket (at least 25%).
You’re ready to pay a registration fee. You’ll have to pay a 2% registration fee, plus the lender may charge any fees that they would typically charge for a conventional loan of the same amount.
Look elsewhere if
You need emergency funding. You won’t be able to get your hands on this money quickly due to the rigorous application and approval process.
You require money to cover day-to-day expenses. You are not permitted to use the money you borrow to pay for daily business expenses like payroll or inventory.
Your business can fund the project itself. You won’t be able to qualify for a CSBFP loan if you can show that your business has the means to pay for the assets you want to buy without taking out a loan.
You have bad credit. Since the approval is up to the bank, you’ll likely need a good to excellent credit rating to qualify for this loan.
Compare other business loans
CSBFP loans may be suitable for you if you need a large amount of money to purchase assets for your business. These loans are typically reserved for borrowers with good credit and are backed by the government in case you’re unable to pay back the full amount of your loan. Because CSBFP loans are backed by the government, you may be able to get one more easily than other types of business loans, although you’ll likely need a good credit score to apply.
Most startups and for-profit businesses in Canada that make less than $10 million in gross revenue can apply for a loan through CSBFP. Businesses that aren’t eligible under this type of loan are farming businesses because they get their financing through the Canadian Agricultural Loans Act program.
You’ll need to pay fees for your CSBFP loan, but they’re usually financed as part of your loan. These include a one-time 2% registration fee, plus the lender may charge any fees that they would typically charge for a conventional loan of the same amount.
Interest rates can be variable or fixed. For a variable rate, the maximum chargeable rate is the lender's prime + 3%. For a fixed rate, the maximum is the lenders' single family residential mortgage rate + 3%.
Yes. Small businesses operated by non-residents are eligible to obtain a CSBFP loan as long as the borrower’s business complies with federal or provincial legislation, the place of business is in Canada and the assets being purchased will be used in Canada.
Yes. There are provisions that allow you to transfer your loan if you sell your business, but it’s up to the bank to decide if they feel comfortable releasing you and assigning your loan to a new borrower.
Repayment terms are typically based on what the funds are being used for. Most equipment and leasehold purchases come with terms up to 10 years. Loans for property improvements or purchases can last for up to 15 years.
Claire Horwood is a writer at Finder, specializing in credit cards, loans and other financial products. She has a Bachelor of Arts in Gender Studies from the University of Victoria, along with an Associate's Degree in Science from Camosun College. Much of Claire's coursework has focused on writing and statistics, with a healthy dose of social and cultural analysis mixed in for good measure. She has also worked extensively in the field of "Blended Finance" with the Canadian government. In her spare time, Claire loves rock climbing, travelling and drinking inordinate amounts of coffee.
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