Canadian Government Funding’s Role in Keeping Businesses in Canada
BioAmber Inc. is a Montreal-based manufacturer of renewable biochemicals including bio-succinic acid, a building block chemical made from corn syrup. The company uses naturally-occurring sugars found in plant matter and transforms them into clean, green chemicals. Some of the products made from biochemical compounds include food flavour and additives, personal care products, adhesives, paints, and cosmetics.
The company’s explosive growth has been fuelled by increased demand for renewable chemicals and BioAmber’s ambitious investments into market expansion. Since opening their first plant in Sarnia, Ontario in early 2015, BioAmber has ramped up to maximum capacity and is now seeking a massive expansion including a new facility nearly 6 times the size of their Sarnia location.
Although BioAmber is certain it will expand in the near future, the company is still evaluating where their new plant will be. Potential destinations currently include Ontario, Louisiana, and Iowa.
One of the most significant factors influencing the company’s decision right now is government funding. BioAmber is in the process of applying for government funding on both sides of the border, and whichever financing plan can assist the business’ growth the most may attract the massive investment to that nation.
Government Funding is Often Used to Attract Large-Scale Business Investments
Government grants and loans are often used as a way to incentivize business investment. In 2014 BioAmber was able to secure $52 million in grants and repayable funding for the construction of their first facility in Sarnia, which was a major difference-maker when it came to financing the $141 million facility.
BioAmber is now in the process of seeking commitments from the Canadian and American governments to extend funding once again. For the newly proposed plant, BioAmber is seeking $360 million USD from the United States’ Department of Energy. No comment has been made about the extent of funding BioAmber is seeking to keep their facility in Canada.
Canadian government funding programs are not business handouts; rather they are meant to stimulate investment and secure Canada’s long-term competitiveness.
The Government Prospers from Business Investments
Federal and provincial governments within Canada have made it well known that their business funding programs are developed to support investments leading to quality, well-paying jobs. The governments have also called for investments spurring productivity, innovation, and increased exports. These are smart investments that bring sustained economic development to Canadian communities.
Especially in the case of repayable funding, where businesses pay back their funding contribution similar to a loan, governments benefit because they can attract business investment for a relatively small cost. Government grants can also be used to attract investment; however, most businesses prefer cash flow extension financing over smaller non-repayable incentives.
Businesses Prosper from Government Funding
Government funding takes two main forms, both of which provide benefit to companies. This includes government grants, and repayable contributions (government loans).
There are numerous government grants available for business expansion; they are traditionally used for simple upgrades such as the purchase of a new product line or attending trade shows in foreign countries. These are typically aimed at small and mid-sized businesses who would be unable to complete the project without certain expenses being subsidized.
Alternately, government loans are used for large-scale business expansion where companies, such as BioAmber can secure financing to afford the development of entirely new facilities. These projects require a substantial investment and require a large amount of capital to become available upfront. For this reason, loans may be extended to enable significant projects and allow the company to repay them once the project begins generating revenue.
Canadian Government Grants for Business Expansion
Canadian businesses may benefit from a number of project-boosting grants and loans, including the following poplar programs:
The Southwestern Ontario Development Fund (SWODF) and Eastern Ontario Development Fund (EODF) are regional funds available exclusively to business operating in Ontario. The programs mirror each other, both providing up to 10-15% of business expansion project costs to a maximum $1.5 million in grants. Up to $3.5 million in additional funding, if required, may also be obtained through Ontario government loans.
The Jobs and Prosperity Fund (JPF) is another Ontario government funding program assisting with large-scale business expansion projects. Projects with eligible expenses surpassing $10 million may apply to receive a combination of grants and loans worth up to 20% of the project’s value. Projects should focus on expanding market reach and competitiveness through productivity enhancements and increased capacity.
CanExport is an export market expansion grant available to businesses across Canada. The program supports the development of marketing materials for foreign markets, as well as funding to participate in targeted trade shows. Businesses may only receive funding to perform these activities in a country where less than 10% or $20,000 of total international sales have been earned in the last 24 months. Businesses may access up to 50% of project costs to a maximum $50,000.