How to Get a Small Business Financing Act Loan in Canada
Small and medium-sized businesses are a significant part of Canada's economy, making up about 44 percent of the total number of business establishments in the country. These businesses, however, face challenges when they look for financing, which is why the government enacted the Canada Small Business Financing Act in 1999 to help small businesses access loans. Under this loan program, the government shares the risk with lenders by covering eligible losses. Each year, small businesses access an average of 10,000 loans worth more than CDN $1 billion or USD $951 million.
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Instructions
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Determine your eligibility. To qualify, you must be a small business operating for profit in Canada, with gross annual revenues of CDN $5 million (USD $4.72 million) or less. Farming businesses aren't eligible because there's a separate program for the farming industry.
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Prepare a business proposal. This proposal should detail your financing needs. In preparing your proposal, consider that the maximum amount available is CDN $500,000 (USD $472,000) per business. From this amount, no more than CDN $350,000 (USD $330,000) can be used for improving leased property and purchasing or improving new or used equipment.
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Know the terms of your financing. Your loan must be secured by the assets you're seeking to finance. Lenders can also choose to take an additional unsecured personal guarantee, which must not exceed 24 percent of the total loan amount.
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Apply for the loan at a financial institution. Shop for rates at participating banks, caisses populaires or credit unions. Visit the financial institution of your choice and discuss your business proposal. The government has a list of private-sector lenders that participate in the program.
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Pay any applicable fees.The financial officer will decide whether or not to grant you a loan after reviewing your business proposal. The financial institution will determine your interest rate, which may be fixed or variable. If the lender approves your loan application, the financial institution will register the loan with Industry Canada. You must pay the lender a registration fee equivalent to 2 percent of the total amount of the loan. This fee, however, can be financed as part of the loan.
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Tips & Warnings
The loan can be used to finance up to 90 percent of the cost of improving real estate property, improving leased property, or purchasing or improving new or used equipment.
Examples of items eligible for financing are buildings, land, commercial vehicles, hotel or restaurant equipment, and computer equipment and software. Not eligible for financing are goodwill, working capital, inventories, franchise fees,
and research and development.
Financial institutions have the discretion to approve or decline a loan applicaton, and Industry Canada does not participate in making this decision.
Not-for-profit organizations, charitable and religious organizations are not qualified to apply under the program.
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