Guide

Canada Small Business Financing Program

What You Should Know

  • Canada Small Business Financing Program is a loan program in which the federal government guarantees up to 85% of the loan amount.
  • To be eligible for the loan, businesses must have an annual revenue of $10 million or less.
  • The maximum loan amount is $1.15 million, which includes up to $1 million in term loans and $150K in line of credit.
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What Is the Canada Small Business Financing Program?

As the name suggests, Canada Small Business Financing Program (CSBFP) is a small business loan program facilitated by the federal government of Canada. While the program is run by the federal government, the financing is provided by lenders such as banks and credit unions. The federal government guarantees up to 85% of the loan amount, which reduces the risk for lenders, and makes loan approval easier.

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Eligibility

A startup or small business (including not-for-profits, charitable organizations, etc) must have a gross annual revenue of $10 million or less to be eligible for the Canada Small Business Finance Loan. Farming businesses are not eligible for the CBSFP and can instead apply for the Canadian Agricultural Loans Act Program.

Loan Amount and Financing

The maximum amount that can be borrowed is $1.15 million, including

  • A maximum of $1 million for term loans, of which
    • No more than $500,000 can be used to purchase or improve equipment, leasehold improvements, and improve leased property.
    • A maximum of $150,000 can be used for intangible assets and working capital costs.
  • $150,000 for lines of credit.

Most lenders finance up to 90% of the eligible purchases up to the maximum abovementioned amounts.

Interest Rates

The borrower can get a fixed or a variable interest rate term loan. The interest rates are determined by the lending institution, with the maximum interest rate being -

Meanwhile, the maximum interest rate for the line of credit can be the lender’s Prime Rate + 5%.

Fees
  • The borrower must pay a one-time federal registration fee of 2% of the term loan amount or 2% of the authorized line of credit amount to the lender. The lender may allow the fee amount to be added to the loan.
  • The lender might also charge other fees such as application fees, documentation fees, administration fees, prepayment charges, renewal fees and conversion fees.
Repayment Terms

The maximum applicable term for a CSBF term loan is 15 years. However, some lenders allow for longer amortization periods of up to 25 years for real property loans. In such as scenario, the balance of the loan amount at the end of the 15-year period is converted to a conventional loan, which is not guaranteed by the federal government. The term length may also vary based on the type of asset being financed, for example, the loan term for purchasing equipment can be limited to 10 years by your lender.

For a line of credit, the maximum term length is 5 years. Before the end of the five years, the line of credit can be:

  • Reregistered for another five years
  • Converted to a term loan of up to 10 years
  • Repaid using the proceeds from a standard term loan or line of credit
  • Repaid in full and closed
Security

The security for CSBF loans typically includes the following:

  1. Asset Security: Real property and equipment must be secured using the financed asset. For leasehold improvements, intangible assets, and working capital costs, the lender is required to take security on any other business assets.
  2. Additional Security: The lender may further secure the loan with additional security, such as a General Security Agreement (GSA).
  3. Guarantee: The lenders have the option to take an unsecured personal guarantee from the borrower, which means the borrower will personally pay the loan if the business fails to do so.
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How Can You Use the Canada Small Business Financing Loan?

There are certain limitations to how the loan can be used. The term loans can be used for a number of eligible activities, such as,

  • Purchasing or improving land or buildings that are used for commercial activity
  • Purchasing vehicles and equipment or improving them
  • Purchase of leasehold improvements, such as renovating a leased property
  • Intangible assets and working capital costs

Some examples of eligible uses of term loans are:

  • Renovating a property to improve its aesthetic appeal or functionality
  • Purchasing furniture or fixtures for the business, such as office desks and chairs, or retail furniture
  • Telecom or computer equipment or software
  • Purchasing commercial vehicles such as delivery trucks or replacing older vehicles
  • Purchasing a franchise

The term loans cannot be used for purposes such as:

  • Purchasing residential real estate
  • Paying off debt
  • Franchise fees
  • Goodwill
  • Cover day-to-day expenses

The line of credit may be used for the day-to-day operating costs, i.e. the working capital cost.

How to Get a Canada Small Business Financing Loan?

All major banks and credit unions in Canada offer Canada Small Business Financing Loan (CSBFL). The lenders offering CSBFL in your region can be found using the Government of Canada’s interactive map.

CSBFL ProviderFeatures
  • Amortization of up to 15 years for all asset classes.
  • Purchases made within 365 days preceding the loan approval are eligible for financing.
  • Amortization of up to 15 years for leaseholds & equipment loans and up to 25 years for real property loans.*
  • Personal guarantee starting at 25% of loan amount required.
  • Charities and religious enterprises are not eligible.
Scotiabank
  • Amortization of up to 15 years for leaseholds & equipment loans and up to 20 years for real property loans.*
  • Allows up to 11 months interest-only payments in the first year.
  • Amortization of up to 15 years for all asset classes.
  • Allows up to 6 months interest-only payments in the first year.
  • Purchases made within 365 days preceding the loan approval are eligible for financing.
  • Amortization of up to 15 years for leaseholds & equipment loans and up to 25 years for real property loans.*
  • The set-up fee is $150 to $1,000, the renewal fee is $50 to $150, and the loan administration fee is 1.25%, which is included in the interest rate.
National Bank
  • Borrow up to 100% of the cost of acquiring eligible assets.

*The loan will be converted to a conventional loan at the end of 15 years.

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Other Small Business Financing Options

Other small business loan options that are available in Canada are:

  1. Conventional Business Loans: Most Canadian banks offer conventional business term loans and lines of credit. Meanwhile,
  2. BDC Loans: Business Development Bank of Canada (BDC) is a federal Crown corporation whose sole shareholder is the Government of Canada. The purpose of BDC is to help the development of businesses in Canada, with a focus on small and medium-sized enterprises (SMEs). BDC offers several financing solutions, including a $100,000 online loan.
  3. Export Development Canada (EDC) Financing: Canadian businesses that want to export their products overseas may be able to secure financing through EDC. To be eligible, the business must have an annual revenue exceeding $10 million.
  4. Microloans: Several lenders offer microloans, generally of up to $50,000, for starting or expanding small businesses.
  5. Grants: There are several province-specific as well as Canada-wide grants that can help fund small businesses. Most grants are domain-specific or purpose-specific, such as open to agricultural technology businesses, or grant digital adoption, etc.
  6. Merchant Cash Advance: Through a merchant cash advance (MCA), businesses can receive instant lump sum funding, which is based on the anticipated future sales. A set percentage of each sale goes towards paying the loan. These loans are usually short-term and can be very expensive.

Disclaimer:

  • Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
  • The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
  • Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
  • Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.