Startups and small businesses are critical to the success of Canada’s economy. However, many of these companies struggle to get started and grow their business. This is often the result of limited cash flow. Early-stage businesses simply cannot afford to complete the same projects as large businesses can. These young companies also struggle to access start-up funding, either through their financial institution or through Canadian government funding.
The Government of Canada has recognized this discrepancy and in an effort to address it, created the Canada Small Business Financing Program to alleviate the growing pains experienced by small businesses across the country.
Through this program, the Canadian government shares the financial risk of investments with lenders, increasing an early-stage business’ ability to receive government funding. Startups and small businesses may be eligible to receive up to $1 million in repayable funding from financial institutions to carry out business expansion projects, such as purchasing new equipment or performing leasehold improvements.
How the Canada Small Business Financing Program Works
The Canada Small Business Financing Program (CSBFP) provides competitive-rate loans up to $1 million in support of business expansion projects. Applicants of CSBFP are typically startups and early-stage businesses that would find difficulty being approved for loans that are provided directly by financial institutions. Due to the risk of CSBFP, investments are divided between financial institutions and the Government of Canada so that traditional “high-risk” loans may be supported with greater ease.
Since its creation in 1999, the program has contributed approximately $17 billion to nearly 170,000 businesses. Although the program had historically focused on primarily startup funding, in 2015 it introduced changes to make the funding more accessible to established, growing small businesses.
To access this program, all business owners must apply through a participating bank or credit union.
Costs to Participate in the Canada Small Business Financing Program
Participating businesses should note the following costs associated with using CSBFP:
Registration Fees: To participate in the program, small businesses will be required to pay 2% of the loan’s total value. This can be financed as part of the loan.
Interest Rates: As determined by the financial institution, lenders may provide either a variable or fixed interest rate.
- Variable: Lender’s prime rate +3%
- Fixed: Lender’s single family residential mortgage rate +3%
Lender Fees: Depending on the lender you contact; they may have their own fees to establish the loan. These fees cannot be financed through the business’ loan.
Startup and Small Business Eligibility to Receive CSBFP Funding
To become eligible to receive Canada Small Business Financing Program funding, businesses should ensure that they:
- Operate and hold assets within Canada;
- Provide products or services to Canadian customers;
- Are a for-profit company; and
- Do not exceed $10 million in annual revenue.
Some businesses will not be considered for participation in the CSBFP, including:
- Agricultural producers;
- Charitable or religious organizations; and
- Not-for-profit organizations.
Is Your Project Eligible for CSBFP Small Business Funding?
Small business loans will support expansion projects for startups and small businesses within Canada. These projects include:
- Purchase or improvement of commercial land or buildings;
- Purchase or improvement of new or used equipment; and
- Leasehold improvements, such as renovations to property leased by a tenant.
Projects Not Eligible to Receive CSBFP Funding
Some projects are ineligible to receive Canadian government funding support through CSBFP. These include:
- Purchasing inventory;
- Research and development projects;
- Development of goodwill;
- Extending working capital; and
- Paying-off franchising fees.
Canada Small Business Financing Program – Eligible Expenses
Program applicants may incorporate the following expenses as part of their small business financing application:
- Architecture, engineering, or design costs;
- Display cases;
- Landscaping included in leasehold improvements;
- Water and drainage systems;
- Parking lot development and paving;
- Sidewalks to access the business;
- Development of molds for production;
- Dies and jig fees; and
- Profits made by contractors (if shown separately on their invoice).
Please Note: This is not an exhaustive list; your business’ expenses may be eligible as long as they are not considered ineligible, as listed below.
The following costs will not be eligible for cash flow extension financing through CSBFP:
- Labour provided by the borrower;
- Expenses already financed through other instruments;
- Purchase of shares in another company; and
- Assets acquired by exchanges or bartering.
Canadian Government Funding Resources for Startups and Early-Stage Businesses
Canadian startups may have limited access to government grant and loan funding programs. However, taking steps to prepare their business will increase the likelihood of funding success in the coming years.
To accelerate your startup or small business’ ability to receive government grants and loans in the future, entrepreneurs should download the free Mentor Works Startup Funding Checklist to better your business eligibility for government funding programs down the road. Also be sure to view our Startup Resources page to learn about other ways to become funding-ready.