St. Catharines, Ontario, 22 January 2015 – Small businesses face greater challenges accessing financing for a variety of reasons, including having little or no credit history, few tangible assets to use as collateral and more volatile sales and earnings. Recognizing this, on January 22, 2015, Prime Minister Stephen Harper announced the Government’s intent to make changes to the Canada Small Business Financing Program that will allow more small businesses to apply and will facilitate more loans for real property. These measures will enhance the ability of small businesses across Canada to secure much needed capital, generating economic growth and job creation.
The new measures, which would be implemented once the supporting legislation and regulations are passed, were informed by consultations with financial institutions and small businesses.
The Canada Small Business Financing Program has been helping small businesses with their financing needs for over 50 years. Under the Program, the Government of Canada makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.
The program’s main objectives are:
- To help new businesses get started and help established firms make improvements and expand;
- To improve access to loans that would not otherwise be available to small businesses; and,
- To stimulate economic growth and create jobs for Canadians.
Since 2006, the program has assisted more than 50,000 businesses, with loans totalling approximately $1 billion each year.
Who is eligible?
Currently, small businesses or start-ups operating for profit in Canada, with gross annual revenues of $5 million or less, are eligible. In keeping with today’s announcement by Prime Minister Harper, this threshold would be increased to $10 million.
Not eligible under this program are farming businesses (Agriculture and Agri-Food Canada has a similar program for the farming industry – for information, visit www.agr.gc.ca), not-for-profit organizations, or charitable and religious organizations.
How much financing is available?
Up to a maximum of $500,000 for any one borrower of which no more than $350,000 can be used for purchasing leasehold improvements or improving leased property and purchasing or improving new or used equipment.
In keeping with today’s announcement by Prime Minister Harper, the maximum loan amount would be raised from $500,000 to $1 million for borrowers seeking to acquire real property.
How do I apply for a loan?
Private sector financial institutions deliver the program and are solely responsible for approving the loan. Discuss your business needs with a financial officer at any bank, caisse populaire, or credit union in Canada. The financial officer will review your business proposal and make a decision on your loan application. Once the decision is made to offer financing under the program, the financial institution will disburse the funds and register the loan with Industry Canada.
What can loans be used for under this program?
Loans can be used to finance the following costs:
- Purchase or improvement of land or buildings used for commercial purposes;
- Purchase or improvement of new or used equipment; and,
- Purchase of new or existing leasehold improvements, that is, renovations to a leased property by a tenant.
For example, you can use a loan to finance:
- Commercial vehicles;
- Hotel or restaurant equipment;
- Computer or telecommunications equipment and software;
- Production equipment; and,
- Admissible costs to buy a franchise.
You cannot use a loan to finance items such as:
- Working capital;
- Franchise fees; and,
- Research and development.
What are the costs?
The interest rate is determined by your financial institution and may be variable or fixed.
Variable rate: The maximum chargeable is the lender’s prime lending rate plus 3 per cent.
Fixed rate: The maximum chargeable is the lender’s single family residential mortgage rate for the term of the loan plus 3 per cent.
A registration fee of 2 per cent of the total amount loaned under the program must also be paid by the borrower to the lender. It can be financed as part of the loan. The registration fee and a portion of the interest are submitted to Industry Canada by the lender to help offset the costs of the program for the Government.
What are the terms of the financing?
Lenders are required to take security in the assets financed. Lenders also have the option to take an additional unsecured personal guarantee.
In keeping with today’s announcement by Prime Minister Harper, the maximum term for real property loans would be increased from 10 years to 15 years in order to reduce administrative burden and align with conventional lending practices.
Other major initiatives that the Government has initiated to help small businesses across Canada to prosper include:
Red Tape Reduction Action Plan
Description: Since it came into effect in 2012, the Red Tape Reduction Action Plan has provided a successful, system-wide control on the growth of regulatory red tape impacting business. To date, the Plan has resulted in over $22 million less in net administrative burden annually and businesses spend 290,000 fewer hours annually dealing with regulatory red tape. By reducing red tape, our Government has helped businesses save an estimated $75 million annually in costs, including for over 5,000 small businesses.
New Small Business Job Credit
Description: The New Small Business Job Credit is expected to save small businesses more than $550 million over the next two years lowering small businesses’ Employment Insurance premiums from the current legislated rate of $1.88 to $1.60 per $100 of insurable earnings in 2015 and 2016. Any firm that pays employer EI premiums equal to or less than $15,000 in those years will be eligible for the credit. Almost 90 per cent of all EI premium-paying businesses in Canada will receive the credit, reducing their EI payroll taxes by nearly 15 per cent.
Venture Capital Action Plan
Description: The Venture Capital Action Plan is improving the access of high-growth companies to venture capital financing so that they have the capital they need to create jobs and growth. The Plan makes available federal resources to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds of funds led by the private sector.
Business Innovation Access Program
Description: The Business Innovation Access Program is a Government of Canada pilot program, announced in the 2013 Budget, that provides $20 million in funding to small- and medium-sized enterprises to help them access business services or technical assistance at Canada’s learning institutions and publicly-funded research organizations to bring bigger and better innovations to market faster.
Lifetime Capital Gains Exemption (LCGE)
Description: Budget 2013 increased the LCGE on qualified small business shares to $800,000 in 2014, and indexed the new limit to inflation. On account of indexation, the LCGE limit increased to $813,600 for 2015. Previously, Budget 2007 increased the LCGE to $750,000 from $500,000, the first increase in the exemption since 1988. The LCGE is estimated to be delivering over $1 billion of federal tax relief annually to small business owners, farmers and fishermen.
Other measures that the Government has taken that will benefit small businesses include:
- Concluding negotiations for the Canada-European Union Trade Agreement and concluding negotiations and securing passage of implementing legislation for the Canada-Korea Free Trade Agreement, Canada’s first free trade agreement in the Asia-Pacific region (2014);
- Creating jobs, economic growth and productivity by launching the $53 billion New Building Canada Plan, which will support the construction or renewal of provincial, territorial and municipal infrastructure (2014);
- Reducing the red tape burden on small businesses, including allowing business owners to go paperless when dealing with the Canada Revenue Agency (2013);
- Introducing a Code of Conduct for the Credit and Debit Card Industry to help small business owners when dealing with credit card companies (2010); and,
- Reducing the small business tax rate to 11 per cent (2008) and increasing the amount of income that is eligible for this lower rate to $500,000 (2007 and 2009).