YOUR COMPANY IS LOOKING FOR A GOVERNMENT-GUARANTEED LOAN!
ACCESSING THE GOVERNMENT OF CANADA SMALL BUSINESS FINANCING PROGRAM
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Financing and cash flow are the biggest issues facing business today.
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Oakville, Ontario
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Understanding Government-Guaranteed Loans Through Canada's SBL Program | 7 Park Avenue Financial
Guide to Navigating Government-Backed Loans in Canada
Government-guaranteed business loans in Canada are unique and vital for financing small businesses in Canada. (The program defines ' small ' as any new business with fewer than 10 Million dollars of actual or projected revenue)
UPDATES ON SOME CHANGES TO THE PROGRAM
Recent changes to the small business financing loan program are intended to ' enhance' the program's level of attractiveness, eliminating some of the ' design flaws' associated with the program in the past on eligible purchases and types of financing.
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Purpose: Helps small businesses obtain loans from financial institutions by sharing risk with lenders.
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Historical Data: Over the last ten years, 53,000 CSBFP loans have been received, totalling $10 billion.
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Eligibility:
- Businesses operating in Canada with annual revenues under $10 million.
- Farming businesses are not eligible.
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Max Loan Amount: $1.15 million per borrower.
- Up to $1,000,000 for term loans; max $500,000 for leasehold and equipment improvements; maximum $150,000 for intangible assets and working capital.
- Up to $150,000 for lines of credit.
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Application Process:
- Handled by financial institutions.
- Discuss business needs with a financial officer at a bank, caisse populaire, or credit union.
- Loan registered with Innovation, Science and Economic Development Canada (ISED) after approval.
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Usable Financing:
- Term loans cover land, buildings, equipment, leasehold improvements, intangible assets, and working capital.
- Lines of credit for day-to-day expenses.
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Interest Rates:
- Term loans: Lender's prime rate plus 3% (floating) or mortgage rate plus 3% (fixed).
- Lines of credit: Lender's prime rate plus 5%.
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Registration Fees:
- 2% fee on term loans based on total loan amount.
- 2% fee on lines of credit based on the total amount authorized.
- Fees payable by the borrower to the lender and can be financed.
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Financing Terms:
- Option for unsecured personal guarantees.
- Must take security on assets financed or other business assets.
WHO SPONSORS AND ADMINISTERS GOVERNMENT LOANS IN CANADA
Financial assistance via an ' SBL Canada ' financing comes under the jurisdiction of INDUSTRY CANADA. Somewhat misunderstood by many potential borrowers is that the program is delivered ' by our Canadian chartered banks.
WHO USES GOVERNMENT LOANS IN CANADA
The successful funding of start-ups and smaller existing businesses in Canada is a cornerstone of the program's success - with up to approximately 8000 businesses being funded annually.
The government, via Industry Canada's CSBF program, guarantees a large part of the financing you receive under the loan proceeds. The maximum loan amount has been increased to 1 Million dollars, although equipment and leasehold improvements can be financed. The ability to finance real property improvements is a huge bonus for small business owners or their financial managers.
SBL'S ARE NOT A CASH FLOW OR WORKING CAPITAL LOAN
Contrary to popular belief, the loan can now be a cash flow loan or for working capital costs and needs. The asset categories are equipment, leaseholds, and real estate / commercial property.
FARM BUSINESSES HAVE AN ALTERNATIVE GOVERNMENT LOAN PROGRAM
Farming businesses in Canada have a separate version of the program suited to the agriculture industry for farms seeking loan and credit approval under the same government guarantees as the SBL program.
ONE CRITICAL KEY TO BEING SUCCESSFUL IN GOVERNMENT LOANS!
A part of the challenge for being successfully funded under the program is that our banks tend to interpret the loan guidelines differently. So, finding an experienced banker or Canadian business financing advisor is critical to sourcing the right financial institutions.
A Business plan is also required - 7 Park Avenue Financial prepares business plans that meet and exceed bank and commercial lender requirements.
WHAT DO SBL LOANS FINANCE?
Commercial loans in Canada for start-up or simply smaller businesses are often difficult to obtain. So, the ability to finance equipment, leaseholds, computers, software, and even real estate under the program is a tremendous boon to Canadian borrowers in the SME (small to medium enterprise) market. In the 2022 program change, intangible assets can also be funded.
How much financing is required should be carefully assessed by the borrower.
PROGRAM RATES AND TERMS AND CONDITIONS FOR GOVERNMENT LOANS
SBL loans in Canada are structured as term loans. Amortizations are generous and typically in the 3-7-year range after receiving loan approval.
Interest Rates under the program are only 3% over the prime rate based on monthly lump sum payments required, which provides an attractive interest rate alternative to those firms seeking alternative financing, which would typically come at much higher rates. This business loan has a registration fee, and many start-ups are well-suited to apply for this type of financing.
While government-guaranteed loans (“SBL " ) are typically used for legally incorporated companies, it is also available for registered partnerships and proprietorships.
RISK SHARING BENEFITS THE BORROWER
Given that the bank and the government share the loan risk, the program is also very attractive to entrants into the Canadian franchise industry.
HOW TO QUALIFY FOR GOVERNMENT LOANS IN CANADA
Positively approaching the loan submission helps guarantee financing success. You or your advisor should ensure a business plan or executive summary and information on mgmt, an opening balance sheet, and a cash flow projection are available. (Loans are repaid from cash flow!) 7 Park Avenue Financial prepares business plans that meet and exceed bank and lender requirements.
The business owner's good personal credit history and personal credit score must also be satisfactory when qualifying for the program. Is your business eligible? Talk to the 7 Park Avenue Financial team today!
CAN YOU BUY A BUSINESS WITH THE GOVERNMENT SBL LOAN?
Don't forget that you may buy a complete existing business via SBL Canada loans. Many franchise financing loans are done under the program - a huge benefit for new franchisees.
CONCLUSION
Small business financing is a challenge - no argument there! When traditional bank or commercial financing is not attainable, speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can help you eliminate those ' design flaws ' of financing to ensure loan success.
FAQ
What is the primary purpose of the Canada Small Business Financing Program (CSBFP)?
The primary aim of the CSBFP is to make it easier for small businesses in Canada to secure loans from financial institutions. The program helps eligible small businesses access capital for various operational and growth-related expenses by sharing the financial risk with lenders.
Who is eligible to apply for a loan under the CSBFP?
Businesses operating in Canada with an annual gross revenue of $10 million or less are eligible to apply for the CSBFP. However, it's worth noting that farming businesses do not qualify for this program; they have a separate program called the Canadian Agricultural Loans Act Program.
How much financing can a business secure through the CSBFP?
A qualified borrower can secure a maximum loan of $1.15 million through this program. Out of this, term loans can go up to $1,000,000, with no more than $500,000 allocated for leasehold improvements or equipment purchases. For intangible assets and working capital, the limit is $150,000. In addition, lines of credit can go up to $150,000. The amortization period is negotiable for term loan structures for assets purchased.
What kinds of expenses can be financed through the CSBFP?
The CSBFP is quite versatile in what it allows you to finance. You can use term loans to buy or improve land, buildings, new or used equipment, and even leasehold improvements. Intangible assets and working capital costs, up to $150,000, are also financeable. For lines of credit, the funds can be used for day-to-day operating expenses of the business.
How are the interest rates and fees structured for CSBFP loans?
The interest rates for term loans and principal payments can be floating or fixed. For floating rates, the maximum chargeable is the lender's prime lending rate plus 3%.
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