CANADA SMALL BUSINESS LOAN FINANCING

One of the Government of Canada's best programs for small businesses has just become a whole lot better. And that means more opportunities for you.

Owners of small businesses frequently lack the funds they need to pay for business improvements or expansion. Financing may not be available to them unless they are willing to include their personal assets as loan security. Those wanting to start up new businesses face similar problems.

Administered under the Canada Small Business Financing Act (CSBFA), the program is a joint initiative between the Government of Canada and private-sector lenders. Under the CSBFA, the federal government partially offsets any losses on CSBF loans. The result is that financing is more accessible, and owners do not have to provide personal assets as security to support their business financing requirements.

How it works

The Canada Small Business Financing Program seeks to increase the availability of loans and capital leases for establishing, expanding, modernizing and improving small businesses. It does this by encouraging financial institutions and leasing companies to make their services available to small businesses. The federal government will guarantee 75 percent of the lender's losses in the event of default.

Is your business eligible?

Most small businesses starting up or operating in Canada are eligible for CSBF loans and leases, as long as their estimated gross revenues do not exceed $5 million during the fiscal year in which they apply. Sole proprietorships, partnerships and incorporated companies all qualify. Not eligible are farming and charitable or religious enterprises.

Most small businesses starting up or operating in Canada -- excluding farming, charitable and religious enterprises -- as long as their estimated annual gross revenues do not exceed $5 million during the fiscal year in which they apply for a loan or a lease. Businesses may be operated as sole proprietorships, partnerships or incorporated companies.

How can loan proceeds be used?

Commercial term loans can finance up to 90 percent of the cost of:

• the purchase or improvement of real property and immovables;
• the purchase of leasehold improvements, or improvements to leased property; and
• the purchase or improvement of new or used equipment.

Capital leases (containing an option to purchase) can finance the cost of various types of new and used equipment, including:

• vehicles;
• hotel and restaurant equipment;
• medical and health services equipment;
• computer hardware and software;
• telecommunications equipment; and
• manufacturing equipment.

Does the CSBF exclude any loan purposes?

The following list is not exhaustive. Loan proceeds cannot be used to:

• improve a family dwelling for non-commercial purposes;
• purchase shares;
• finance working capital (finance inventory, accounts receivable, etc.);
• permits and licenses used in the operation of eligible assets;
• franchise fees;
• feasibility studies;
• professional fees (e.g. legal, accounting and appraisal);
• survey costs;
• building permits;
• vehicle for personal use;
• intangibles (i.e research and development costs, prepaid expenses, good will, etc,); or
• purchase real estate for resale.

How much financing is available?

• The maximum value of loans or leases a borrower may have outstanding under the CSBFA cannot exceed $250 000.
• Loan proceeds may be used to finance up to 90% of the cost of the asset, including non-refundable taxes and duties.
• Note: Lenders are obligated to take security in the assets financed. When financing leasehold improvements or computer software, the lender may take security in other business assets. The lender may take personal guarantees or surety ships not exceeding, in aggregate, 25% of the original amount of the loan. These guarantees or surety ships cannot be secured with personal assets.

What about loan repayment?

The period during which a loan must be repaid will generally coincide with the expected economic life of the asset being financed, up to a maximum of 10 years. Installment payments on the loan principal must be scheduled at least annually, but monthly payments are usually called for depending upon arrangements between the borrower and the lender.

How are interest rates determined?

Interest rates on loans may be either floating or fixed. The floating rate cannot be more than 3 percent higher than a lender's prime lending rate. Fixed rates cannot be more than 3 percent higher than the lender's residential mortgage rate for the term of the loan.

The interest rates include a 1.25 percent administration fee. In addition, at the time of registration all participants must pay a 2 percent registration fee. The fees cover the costs of the CSBF Program, which is self-financing. All loans and leases must be paid in full within 10 years.

The lender may charge a penalty for the prepayment or conversion of the loan.

Any other costs?

Lenders are required to pay a one-time loan registration fee to the government equal to 2% of the amount loaned. The fee is recoverable from borrowers who may reimburse the lenders when their loans are advanced or have the amount of the fee added to their loan balances, provided that the individual borrower's loan maximum of $250 000 in total is not exceeded.

Security

For loans and capital leases alike, the same security requirements apply: both financial institutions and leasing companies are required to take security in the assets financed, in accordance with provincial law. They may also require corporate and/or personal guarantees; however, personal guarantees cannot be secured or exceed 25 percent of the total financing amount.

Who issues these loans?

Chartered banks, caisses populaires, Alberta Treasury Branches, most credit unions, and many trust, loan and insurance companies are authorized to make loans directly to small business enterprises. Lenders are required to make CSBF loans with the same care as in the conduct of their ordinary business, that is: to assess credit worthiness and draw up agreements following normal lending practice and to administer the loans in accordance with specific program requirements.

A win-win-win situation

Since 1961, hundreds of thousands of small businesses have obtained financing that might not otherwise have been available to them - thanks to the Small Business Loans Program and its successor, the Canada Small Business Financing (CSBF) Program.

Today the Program continues to help Canadian small firms get business improvement loans.

The CSBF Program benefits small businesses, the lending community, the participating leasing companies and all Canadians:

• Small businesses gain access to financing that might not otherwise be available to them.
• The lending community and participating leasing companies can broaden their client base and meet the needs of emerging businesses.
• Canadians benefit because the CSBF Program helps businesses grow and create jobs - and the result is a more dynamic Canadian economy.

How do I apply?

Contact Northern Range Capital and let us help you apply for a CSBF loan or click on the link below and fill out the application and fax it back to us at 905-901-3128.

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SEE ALSO

 Canada Small Business Leasing

The Loan Application Process

 

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