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Canada Small Business Financing Program (CSBFP)
Learn about the Canada Small Business Financing Program guidelines and decide if this loan is right for your business.
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. Any small businesses or start-ups operating for profit in Canada are eligible as long as they have gross annual revenues of $10 million or less.
Find out more about how these loans work, what you can use them for and which businesses might be eligible.
What is a CSBFP loan?
The Canada Small Business Financing Program (CSBFP) makes it easier for small businesses to get loans to help them start or continue to expand their business.
- The loan is partly backed by a government guarantee via Innovation, Science and Economic Development Canada (ISED). 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. Because your loan is government-supported, lenders may be more willing to qualify your business and provide more funding at competitive interest rates.
- Apply for up to a maximum of $1,000,000.
- You can use the money to purchase or improve business assets like land, buildings, equipment and leasehold agreements. You won’t be able to use the loan to fund day-to-day operations like payroll, inventory or other expenses.
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.
What is eligible for financing?
If you’re teeing up a CSBFP loan application for your business, keep in mind the financing can only be used for the cost of the following:
- Buying or improving on land or buildings used for commercial purposes
- Buying or improving new or used equipment
- Taking out a new lease or paying for renovations made to a leased property
To clarify, the federal government includes these examples of what your financing can cover:
- Buying new storefront space or paying for renovations to existing space
- Buying commercial vehicles for your business
- Buying hotel or restaurant equipment
- Buying computer or telecommunications equipment and software
- Buying production equipment
Keep in mind that while you can borrow up to $1 million under this program, no more than $350,000 can be used to finance the purchase or improvement of equipment along with renovations made to a leased space.
What is ineligible for financing?
There are some expenses that your CSBFP loan can’t cover, including the following:
- Buying inventory
- Working capital or cash flow
- Paying for franchise fees
- Research and development costs
- Advertising costs
If you’re unsure of whether an expense can be paid for via your loan, speak with the financial institution that is helping you with your application.
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 with other business loans
What are the repayment terms, interest rates and other fees involved?
As the borrower of a CSBFP loan, you’re on the hook for some fees and interest charges. Here’s a look at the costs you’ll incur from your loan:
- Registration fee. The CSBFP comes with a registration fee of 2% of the total amount of the loan amount you decide to take out. The registration fee can be rolled into the overall loan you’re financing so you don’t need to pay for it upfront.
- Lenders fees. You may come across charges from your lender, including set-up fees and loan renewal fees, that they would typically charge for a conventional loan of the same amount. These fees are paid directly to your lender and won’t be financed under this program. It’s worth double-checking with your lender on the list of fees you may come across in your dealings with them.
- Interest rate. Interest rates on your loan 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 lender’s single family residential mortgage rate + 3%.
If you took out your loan before February 2016, the maximum term you can apply for is 10 years.
If you applied for your loan after that, or you’re in the process of applying now, the repayment terms have slightly changed. Borrowers have a maximum term of 10 years for any financing used for leasehold improvements and equipment and 15 years for any financing used to buy property.
Businesses must work with their lender to determine their repayment schedule. The federal government says “payments may be adapted to a borrower’s needs,” including blended, seasonal or escalating payments. For the CSBFP loan, at least one payment of interest and one payment of principal must be scheduled to be made each year.
How much of my loan will be guaranteed by the government?
In some cases, the government may guarantee up to 90% of your loan with a CSBFP loan. Keep in mind that you’re likely securing your loan with your lender too. For example, if you are using your financing to buy property or a new fleet of trucks, these assets will be used as security against your loan. If you’re using your financing for a lease, you won’t have a tangible asset in hand to use as collateral. In this case, your lender may ask you to secure your loan with other business assets instead.
If your business defaults on the CSBFP loan, your lender’s first move will be to try to claim your collateral to make up for its losses. Your credit score is on the line too.
This means you will still have financial consequences for defaulting even if you don’t have to repay the full amount of your loan.
The government says that there are limitations on how much it is liable to each lender for losses on CSBFP loans. The payouts are lumped into five-year lending periods. For example, the government will pay back to a lender 90% of the first $250,000 in defaulted loans, followed by 50% on the next $250,000 and 10% of the total in excess of $500,000.
In the 2019-2020 financial year, for example, the CSBFP paid a total of 680 claims worth a total of $53.8 million to lenders. These claims were tied to loans that went into default. The average claim size was $79,072.
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. Find a participating lender near you through the government’s interactive map.
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.
About the CSBFP
In the 2019-2020 year, 5,651 loans were made to Canadian small businesses valued at $1.3 billion. The average loan size was $229,821. The majority of these businesses were operating for less than one year. And nearly a majority (43%) of the businesses receiving CSBFP loans were in the accommodation and food services industry, followed by retail trade, arts, entertainment and recreation.
Over the past 10 years, small businesses have received $9.8 billion in financing with over 61,000 funded loans via the program.
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.
To learn more about business loans and to compare your options, check out our full guide here.
Frequently asked questions about CSBFP loans
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