New Changes to the Canada Small Business Financing Program (CSBFP)
There are new changes to the Canada Small Business Financing Program to further support the small businesses. “The amendments to the Canada Small Business Financing Regulations and Canada Small Business Financing Act came into force on July 4, 2022. They provide lenders and small businesses with additional financing products, new class of loans, increased loan amounts and terms, improved loan conditions and decreased administrative burden.” What are the changes those small businesses can benefit from?
New financing amounts: $1.15 million which includes the following
o $1 million for term loans;
o maximum of $500,000 for equipment and leasehold improvements loans; and$150,000 for intangible assets and working capital costs.
o $150,000 for lines of credit for working capital costs (which is over and above the $150,000 that can be used for working capital costs under the term loan product).
1. New financing classes: Intangible assets and working capital costs can be financed as a term loan and are defined as follows:
o intangible asset: a non-monetary asset without physical substance that can be sold, transferred, licensed, rented or exchanged or that arises from a contractual or other legal right. Examples: franchise fees, goodwill, incorporation costs, permits and licenses used in the operation of eligible assets, capitalized research/development costs.
o working capital costs: costs to fund the day-to-day operating expenses of a business.
Examples: inventory, expenses related to the creation and development of software and websites, printed materials (brochures, flyers, business cards, menus, photocopies), professional fees (e.g., legal, accounting, appraisal), research and development costs, payroll, rent.
2. Maximum loan term (government coverage period): On or after July 4, 2022, all term loans to finance real property, leasehold improvements, equipment, intangible assets and working capital costs can be made for a maximum 15 year term.
3. Eligible expenditures – Appraisal
Eligible expenditures: The time period to finance expenditures or commitments for any term loan has been increased from 180 days to 365 days prior to the date the term loan is approved.
Appraisals: In the event a lender is required to obtain an appraisal to finance a term loan, the date that the appraisal is made has been changed from 180 days before the term loan is approved to 365 days before the term loan is disbursed.
Implementation: These new provisions for eligible expenditures and appraisals described above apply only to term loans that have the date of first disbursement on or after July 4, 2022.
4. Maximum interest rate and fees
o The maximum interest rate for term loans continues at prime + 3% (or the single familyresidential mortgage rate + 3%);
o The 2% registration fee continues to apply;
o The 1.25% annual administration fee applied to the end-of-month loan balances continues to be in effect.
Line of credit:
1. New financing product: A line of credit may be made for working capital costs, that is, costs necessary to cover day-to day operating expenses of a business. Examples are: inventory, expenses related to the creation and development of software and websites, printed materials (brochures, flyers, business cards, menus, photocopies), professional fees (e.g., legal, accounting, appraisal,), research and development costs, payroll, rent.
2. Eligible expenditures: A line of credit may be used to pay for ongoing expenditures or commitments that arise or were invoiced no more than 365 days prior to the date the line of credit was authorized.
3. Line of credit term (government coverage period): The maximum term for a line of credit is 5 years beginning on the day after the line of credit is opened by the lender.
4. Renewal of a line of credit: Before the end of the five years from the date the line of credit is opened, the lender and borrower have the following options:
o Re-register the line of credit for a new period of 5 years in which case a new registration form and a registration fee of 2% on the renewed authorized line of credit amount will be required to be submitted to the CSBFP;
o Convert the line of credit amount to a CSBFP term loan with a maximum 10-year CSBFP coverage and that meets the following conditions:
▪ The interest rate must not be greater than prime rate plus 5%;
▪ The terms of loan conversion are set out in a document signed by the lender and the borrower and that provides a minimum of one principal and interest payment each year, with the first payment scheduled to be made within one year of the date the conversion;
o Enter into an agreement to repay the balance of the line of credit with a conventional loan.
5. Interest rate and fees:
o The maximum interest rate for lines of credit is prime + 5%;
o The registration fee for lines of credit will be 2% of the authorized amount;
o The annual administration fee for lines of credit is 1.25% on the daily outstanding amount or the average daily balance for each month.