The Canada Small Business Financing Programme (CSBFP) is a federal loss-sharing programme, delivered through participating financial institutions rather than by government directly, that helps a small business or start-up in Canada — including a buyer of an existing business’s assets — obtain a term loan or line of credit.
The federal government’s own programme page sets the numbers precisely: “the maximum loan amount for a borrower is $1.15 million”, of which up to $1,000,000 can be a term loan, and of that amount no more than $500,000 can go to leasehold improvements and equipment, capped in turn at $150,000 for intangible assets and working capital. Separately, up to $150,000 is available as a line of credit, over and above the working-capital portion of the term loan. Eligibility runs to a Canadian business with gross annual revenues of $10 million or less; farming businesses are excluded (a separate federal loans act covers them). The 2 percent registration fee can itself be financed as part of the loan.
The load-bearing rule for an acquisition file is the one buyers and their advisors get wrong most often: “you cannot use a loan to finance items such as share purchases or assets that a holding company acquires”. The programme instead finances “the purchase of eligible assets of an existing business” at the lesser of the purchase cost and the appraised value. That single line reframes an entire financing decision — a vendor who wants a share sale for lifetime capital gains exemption reasons is, at the same moment, taking CSBFP financing off the buyer’s table for that portion of the price.
The programme is a guarantee mechanism, not a government loan: the lender sets its own interest rate up to a ceiling of prime plus 3 percent (variable) or the lender’s residential mortgage rate plus 3 percent (fixed), and prime plus 5 percent on a line of credit, and “the money the borrower receives is that of the financial institutions and not the government”. The Minister’s liability remains 85 percent of the lender’s eligible loss under the Canada Small Business Financing Act — a share of the loss, not a share of every loan, and not the same figure as the $1.15 million loan cap itself.
A buyer is acquiring only the equipment and leasehold improvements of an existing HVAC business for $420,000 — the lesser of the negotiated price and the appraised value the lender obtains. That sits comfortably inside the $500,000 equipment/leasehold sub-cap, so the whole $420,000 can be structured as a CSBFP term loan; the 2 percent registration fee ($8,400) is financed into the loan rather than paid up front, bringing the financed total to $428,400. The goodwill and client list the buyer is also paying for sit outside this loan entirely and need a separate source — a BDC facility or a vendor take-back, for instance.
See also: Business Development Bank of Canada, general security agreement and asset-based lending.
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