Specializing in franchises, small business,
investment & income properties
Small business is one of the fast growing segments of Canada’s economy. Imaginative entrepreneurs with drive and spirit are creating thousands of new jobs and new opportunities for our country’s future. The Canada Small Business Financing (CSBF) Program was created to help small businesses reach their potential by making it easier for them to get term business improvement lawns to finance the purchase or improvement of fixed assets for new or expanded operations. Administered under the Canada Small Business Financing (CSBFA), the program is a joint initiative between the Government of Canada and private sector lenders.
WHY A CSBF LOAN?
Owners of small businesses frequently lack the funds they need to pay for business improvement 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. Under the CSBFA, the federal government partially offsets as security support their business financing requirements.
WHO ISSUES THESE LOANS?
Chartered banks, caisses popularizes. Alberta Treasury branches, most credit unions, and many trust, loan and insurance companies are authorized to make loans directly small business owners. 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.
WHICH BUSINESSES ARE ELIGIBLE?
Most small businesses starting up or operating in Canada are eligible for CSBF loans, as long as their estimated annual gross revenues do not exceed $5 million during the fiscal year in which they apply for a loan. Farming and charitable religious enterprises are not considered eligible business, however, Businesses may be operated as sole proprietorships, partnerships or incorporated companies.
HOW CAN LOAN PROCEEDS BE USED?
Loan proceeds may be used to finance the purchase or improvement of real property or immovable; the purchase of leasehold improvements or improvements to leased property, and the purchase of improvement of new or used equipment; necessary for the operation of the business.
DOES THE CSBF EXCLUDE ANY LOAN PURPOSES?
Loan proceeds cannot be used to: purchase shares or other types of ownership in a business enterprise; finance working capital (finance inventory, accounts receivable, etc.); finance expenditures or commitments, made by the borrower, previously financed by a term loan; purchase real estate for resale; or purchase or improve real estate for lease or sublease purposes (hospitality, health care and mini-storage industries are exempt from this exclusion).
ARE THERE BORROWING LIMITS?
The maximum value of leans a borrower may have outstanding under the CSBFA and the Small Business Loans Act (SBLA) cannot exceed $250.000. Loan proceeds may be used to finance up to 90 percent of the cost of the asset, including non-refundable taxes and duties. Lenders are obliged 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 percent 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 principle must be scheduled at least annually, but monthly payments are usually called for depending upon arrangements between the borrower and the lender.
HOW ARE THE INTEREST RATES DETERMINED?
Under the CSBFA, borrowers may choose between:
Floating rate loans, where the interest rate fluctuates with changes in the lender’s prime lending rate over the term of loan, but cannot be more than 3 percent over the lender’s prime lending rate: and fixed rate loans, where the interest rate is fixed for the term of the loan, but cannot be more than 3 percent over the lender’s residential mortgage rate for the applicable term. This 3 percent includes an annual administration fee of 1.25 percent payable by the lender to the government. A loan can be prepaid or the interest can be converted to a fixed or floating rate. 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 percent of the amount loaned. The fee is recovered from borrowers who may reimburse the lenders when their loans are advanced or have the amount of the fee added to their loan balanced, provided that the individual borrower’s loan maximum of $250,000 in total is not exceeded.
HOW DO I APPLY?
Contact the lender of your choice to find out more about the CSBFA.