The Business Development Bank of Canada (BDC) is a federal Crown corporation created by its own Act of Parliament, an agent of the Crown for all purposes, whose statutory purpose is to support Canadian entrepreneurship by providing financial and management services, giving particular consideration to the needs of small and medium-sized enterprises.
That Crown-agent status makes BDC a different kind of lender than a CSBFP-guaranteed tranche. BDC lends from its own balance sheet as a direct lender; the CSBFP is not a lender at all, it is a federal loss-sharing guarantee that caps the Minister’s liability at 85 percent of an eligible loss under the Canada Small Business Financing Act and where “financial institutions are solely responsible for making the decision to approve a loan”. A BDC term loan and a CSBFP-eligible tranche are frequently stacked in the same Canadian SME acquisition, but they are legally and financially distinct instruments.
BDC’s own acquisition product is described as a Business Purchase or Transfer Loan, built to finance purchasing an existing business, transferring it to family or management, or refinancing a vendor-financing arrangement, plus intellectual property, goodwill and client-list costs and other transaction costs, with eligibility resting on a Canadian-located, revenue-generating business with a good credit history. BDC positions itself as taking on more risk than a conventional lender and structuring loan terms to protect your working capital.
For a smaller CSBFP-eligible acquisition the two sources are complementary rather than competing: BDC can finance pieces the CSBFP explicitly excludes — a share purchase, or goodwill above the CSBFP’s asset-based structure — while a CSBFP tranche covers the equipment and leasehold-improvement piece within its own caps.
A fund’s portfolio company is buying a smaller add-on for $3,000,000: $2,200,000 of shares and $800,000 of eligible equipment and leasehold improvements. The equipment piece goes through a CSBFP-backed term loan up to its $500,000 equipment/leasehold sub-cap plus the platform’s own equity for the remainder; the $2,200,000 share purchase — which the CSBFP cannot finance at all — is funded by a BDC Business Purchase Loan sized against the platform’s consolidated cash flow. The two facilities close simultaneously but are documented, secured and repaid independently.
See also: Canada Small Business Financing Programme, leverage multiple and bridge financing.
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