Small business owners face a number of challenges to start and sustain an operation. One of the vital components to their success, apart from the typical key attributes, is their ability to obtain financing (unless they are among the fortunate few who have a windfall to kick start their entrepreneurial journey). The credit history plays a significant role but a potential small business owner can look to a few avenues such as bank loans, venture capital, or government funding to cash flow their operation. The Government of Canada has been offering the Canada Small Business Financing Program for over 50 years to assist such entrepreneurs obtain loans from financial institutions.

How does the program work?

The Government of Canada (through the Small Business Financing Directorate of Industry Canada) shares the lending risk with financial institutions to help small businesses obtain funding (to start or expand an operation). The lending institution offers a loan by securing the financed asset and they also retain the option to accept an additional unsecured personal guarantee (not exceeding 25% of the total loan). Small businesses with gross annual revenues of $5 million or less can apply through this program and the loan amount is restricted to $500,000 for one applicant. The program is meant to provide easier access to capital for small businesses and promote economic growth.

Charitable organizations, religious institutions, not-for-profit businesses, and farming businesses are not eligible to use this program. The farm industry has its own set of programs and services, the comprehensive list of which can be found on this page.

Application process and types of eligible loans

Although the program is a Government of Canada initiative, the loans are delivered through financial institutions. In other words, the institutions (see list of lenders here) retain the right to approve or reject an application based on the provided information. The business plan forms a critical part of the application and if approved, the lending institution will register the loan with Industry Canada.

A borrower can finance up to 90% of the cost of purchasing or improving land and buildings, buying new or used production equipments, computer/telecommunication equipments, commercial vehicles, and leasehold improvements using the loan amount. However, the loan obtained through this program cannot be used to finance inventories, goodwill, franchise fees, or working capital.

Cost of financing

The lending institution sets the interest rate for the loan. The maximum chargeable variable interest rate is the institution’s prime lending rate plus 3% and the maximum chargeable fixed interest rate is the institution’s single-family residential mortgage rate plus 3%. In addition, there is a registration fee of 2% of the total loan amount due to the lender but it can be financed as part of the loan. Under the program, the registration fee and a certain % of the interest are due to Industry Canada (paperwork is handled by the institution).

Have you used the Canada Small Business Financing Program? If so, are there any first-hand tips/insight you can provide to readers looking to use it to start or expand their own business? Are you aware of other similar programs (maybe, at the provincial level)?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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Can this program be utilized to assist in financing the purchase of an existing small business?

Excellent post.

Once upon a time the motto was “Go to school, get a good education and get a good job in a company.”

While working at a company still provides the potential for excellent earning power, a rewarding career and excellent work/life balance; it has become increasingly evident that small business is the key to amassing significant wealth.

From a mortgage standpoint however; people in ‘business for self’ are having an increasingly more difficult time obtaining financing. Make of that what you will.

@Monster: “…it has become increasingly evident that small business is the key to amassing significant wealth.”

Study after study has revealed the majority of millionaires gained their wealth via owing their own business. Definitely the way to go if you have the acumen.

Hello everyone, I have a question about this program. Could someone answer my question? I’m planning to buy a franchise but I have little net worth, what I mean, I only have savings on cash to cover what the franchisor asks to have in cash to qualify, however, the balance of the investment will need to be covered by a loan that according to the franchisor generally qualifies under the Canada Small Business Program. I want to know before making any decision or submitting application to the franchisor if I could really afford this. I have been doing some research and what I see is that generally the finance institution expect from the business owner to provide their personal guarantee that cannot exceed 25% of the loan. Now, as I said my net worth is only cash in saving accounts other than that I do not have or own any heavy assets (properties, etc) that I could put as personal guarantee. What are my options? Is it really necessary to have some liquidity that is not cash to qualify? What about assets that I have overseas?

Thanks to anyone who might take the time to reply.

Can this loan be used to finance the down payment for a commercial property (i.e. multifamily rental)? Most commercial loans require at least 25% or more as down payment. Can this loan be used to cover that down payment (partially or fully)?