Financing your small business is one of the keys to success. Early on, it’s also your biggest challenge. The Canada Small Business Financing Program is a government program that tries to make getting loans for small businesses easier by sharing the risks with lenders.
What Is the Canada Small Business Financing Program?
The CSBFP is one in which the government of Canada agrees to share the risks of lending to start-ups and small businesses with the lender. Practically speaking, the program is run through traditional banks, trade unions, and cases populaires, and not by the government, who simply acts as a guarantor of the loans made. According to Industry Canada, over the past 10 years, small businesses have received over $9.4 billion in asset-based financing representing over 76,000 loans made.
Who Is Eligible?
Your business is eligible for the program if you run a start-up or a small business with sales of less than $10 million annually. Farming businesses, not-for-profits, charitable organizations, and religious organizations aren’t eligible for the program.
The CSBFP lets you borrow up to $1 million to finance various eligible expenses, which include the land, buildings, and equipment you use to operate your business. Common examples of covered expenses include commercial vehicles, machinery, and computer and telecommunications software. Tenant improvements on leased buildings are also eligible, though in these cases the limit is $350,000. The cost of buying a franchise may also be covered by the program.
Under the CSBFP, funds cannot be used to finance goodwill, working capital, inventory, franchise fees, or research and development.
How Does the Program Work?
To get help from the program, you just need to visit your usual bank and go through the loan process. Along the way, you and your bank determine whether the CSBFP is right for you and which assets may be eligible. If you and the bank decide to use the CSBFP, it’s the bank’s job to register the loan with the Canadian government to ensure it’s covered.
What Are the Advantages of the Program for My Business?
Before considering how the program can help you, know it can’t automatically get you a better interest rate or better terms on your loan. Although the program does set limits on the interest rates that banks may charge you, these need to be negotiated between you and the financial institution on a case-by-case basis. However, that the risk associated with the loan is shared with the government of Canada should predispose the bank to give you better terms, so use your negotiation skills to leverage this to your advantage.
The main benefit of the program is that it gives you, as a startup or small business, access to capital you might not otherwise have. As an entrepreneur, you know access to financing is the number one difficulty small businesses face, and this program is a way to get past this hurdle. Be sure to bring up the CSBFP with your banker when discussing financing options.