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  • Anmol Trehin

The Canada Small Business Financing Program: Unlocking Opportunities for Start-ups

As exciting as it is to embark on a new business venture, the reality is that obtaining funding can be an uphill battle. From navigating a competitive landscape to meeting stringent criteria, entrepreneurs often face numerous obstacles in their quest for financial support. That's why we want to shed light on a valuable resource that can help Canadian start-ups overcome this hurdle: the Canada Small Business Financing Program (CSBFP).


In this blog post, we'll provide an overview of the CSBFP and how it can benefit your start-up business.

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What is the Canada Small Business Financing Program?


The CSBFP is a government initiative aimed at supporting small businesses in Canada by providing loans through participating financial institutions, such as banks, credit unions, and other lenders. The program is designed to encourage lenders to make loans to small businesses that may otherwise have difficulty qualifying for traditional financing. The program is administered by the Government of Canada's Innovation, Science and Economic Development Canada (ISED) department in partnership with these lenders.


Who is Eligible To Apply for the Program?


To be eligible for the CSBFP, your business must meet the following criteria:

  • Be a for-profit small business or start-up operating in Canada;

  • Have gross annual revenues of $10 million or less;

  • Use the loan to acquire or improve eligible fixed assets, such as buildings, equipment, and vehicles, as well as for leasehold improvements and the purchase of commercial real estate

Certain types of businesses, such as farming, charitable, and religious organizations, are not eligible for the program.


How Can the CSBFP Benefit Your Start-up Business?


As a start-up business, you may have limited assets or a short credit history, making it difficult to obtain traditional financing. Since the CSBFP is a government backing of loans, it makes it easier for your business to access loans and lines of credit.


Term loans can be used to finance the purchase or improvement of land or buildings for commercial purposes, equipment, leasehold improvements, intangible assets, and working capital.


For example, your business may acquire a term loan under the program to finance:

  1. Commercial vehicles

  2. Hotel or restaurant equipment

  3. Computer or telecommunications equipment and software

  4. Production equipment

  5. Costs to buy a franchise

Meanwhile, the line of credit can be used to pay for working capital costs, like day-to-day operating expenses.


How Much Available Financing Is There?


The maximum loan amount for a borrower is $1.15 million. This amount is broken down into separate categories. Of the available amount, a maximum of $1M can be used for term loans for any one borrower.


Of this $1M, a maximum of $500,000 can be used for:

  • purchasing leasehold improvements

  • Improving leased property

  • Purchasing new or used equipment

  • Improving new or used equipment

Of the $500,0000, a maximum of $150,000 can be used for intangible assets and working capital costs.


A maximum of $150,000 is available for lines of credit.


What Costs are Associated with the CSBFP?


Since the program is administered through lenders, the costs associated with the program will vary. However, the CSBFP provides certain guidelines and maximums.


For lines of credit, the maximum chargeable is the lender’s prime lending rate plus 5%.

For term loans, the interest rates may either be floating or fixed. For floating interest rates, the maximum chargeable is the lender’s prime lending rate plus 3%. For fixed interest rates, the maximum chargeable is the lender’s single-family residential mortgage rate for the term of the loan plus 3%.


Additionally, there is a registration fee associated with the program which must be paid by the borrower to the lender. The registration fee itself can be financed. For lines of credit, the registration fee is 2% based on the total amount authorized. For term loans, it is 2% based on the total amount loaned under the program.


How to Apply for the Program?


To apply for the CSBFP, you'll need to work with a participating lender, such as a bank, credit union, or other financial institution. The lender will assess your start-up's eligibility, creditworthiness, and repayment ability, and if approved, the lender will provide the loan under the CSBFP.


Businesses can work with the lender to prepare the loan application to submit it for approval. Since the lenders are responsible for administering the program, entrepreneurs may need or provide collateral or security for the loan and may need to meet other requirements set by the lender.


The application process can take several weeks, so it’s important to plan and be prepared to provide all the necessary documentation and information.



What Are Other Funding Options for Start-Ups?


There are various ways for start-ups to access capital to fuel their business dreams. One common option we’ve discussed in today’s post is by obtaining loans, which can come from traditional banks, alternative lenders, or even government-backed programs. Loans typically require repayment with interest, but they allow entrepreneurs to retain full ownership and control of their businesses.


Another avenue is seeking investments in exchange for equity, such as angel investors or venture capital firms. This involves giving up a portion of ownership in the company in exchange for capital, but it can bring valuable expertise and connections to the table.


Additionally, grants, accelerators, and incubators are other options for start-ups to access capital, although they may come with specific requirements or limitations. Each funding option has its pros and cons, and it's crucial for start-ups to carefully consider their financial needs, growth plans, and long-term goals when determining the best approach to access capital.

Conclusion


As a start-up business, accessing financing can be a significant challenge, but the Canada Small Business Financing Program can be a valuable resource to help you overcome this hurdle. If you're considering applying for the program, be sure to work with an experienced business law firm that can help you navigate the process and ensure that your legal rights and obligations are protected.

 

This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.

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