Accessing Financing Changes to the Small Business Loans Act
Published October 2002
Small business owners often ask CanadaOne where they can access loans and grants. While government money may appear tucked away, making it difficult to find, let alone acquire, the Canada Small Business Financing Program (CSBF) is one avenue that could be open to you.
This federal government program, offered since 1961, has changed somewhat over the years. A recent change allows business owners to use the loan money to lease new or used equipment as well as to buy it. As a small business owner, you can access up to $250,000 in loans or capital leases. This money may only be used to acquire assets such as property and company vehicles, not to hire and train new employees.
Considerations
Okay, the shoes are on, your hand is on the doorknob: you're ready to set out and find this elusive money. But wait: in order to qualify, your estimated gross revenues cannot be any higher than $5 million during the fiscal year that you apply. You will also have to fall into the category of sole proprietorship, partnership, or incorporated companies. Non-profits, religious, and farming organizations aren't eligible for these programs.
Necessities
Now you can dash to your bank. Make sure that your banker knows you want the loan under the CSBF program. If your application is approved, the bank will be guaranteed a return of 85% of their losses, if you are forced to default on the loan. The banks will be required by law to take some form of security in the assets for which they have provided funding. They can also ask for corporate and/or personal guarantees. In the case of personal guarantees, your bank can request no more than 25% of the loan total.
You will likely have to show that you have contributed a portion of your own money toward the purchase, as loans under the CSBF will only cover up to 90% of the purchase. Capital leases, on the other hand, can cover the entire cost of the equipment.
Payment terms
While it would be nice to have $250,000 and go on a shopping spree for your business, remember that at some point the bank will expect to have its money back. Interest rates for loans received under the program can be either fixed or floating. If you prefer the predictability of a fixed rate, know that it will not go beyond 3% of bank mortgage rates. If you hope to save some money through a floating rate, these rates can never be more than 3% higher than the bank prime-lending rate.Business owners interested in the leasing part of the program are in for much higher interest rates. Lenders can ask for as much as 13.25% plus the current federal bond rate.
More fees
Government involvement always equals red tape. What this means for you is more fees. In addition to "administration" fees included in your interest rates, you will be required to pay a 2% registration fee. Regardless of the amount you borrow or lease, it must be paid in full within 10 years.
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