The Canada Small Business Financing Program ("CFBFP")
was first introduced over 40 years ago by the Federal Government to
provide small and medium sized businesses greater access to
financing, through this government guaranteed loan program. When
initially introduced, banks readily advanced funds under this
program to businesses that would not otherwise qualify for
financing. As time passed and banks gained experience in
originating and administering these loans they become increasingly
less attractive for banks to undertake primarily due to the
underlying administrative burdens. The Federal Government has
introduced changes that took effect April 1, 2014, to the CFBFP,
which is now governed by the Canada Small Business Financing
Act and the Canada Small Business Financing
Regulations. The essence of the changes is to relieve many of
the irritating administrative burdens under the CFBFP, the primary
issue that deterred financial institutions from participating in
and supporting the program. By making the CFBFP less
administratively cumbersome and otherwise more attractive for
lenders to originate loans, small business owners should have
greater access to financing.
Highlight of Changes to Small Business Loans
Unsecured personal guarantees allowed to be taken for the
original amount of the loan, under the old program this amount was
capped at 25% of the original loan amount.
Lenders are now allowed to charge fees on small business loans
for set up, renewal and amendments at a rate no greater than
ordinary loans of the same amount.
Prior to the amendments, lenders could only finance up to 90%
of the cost of purchasing or improving equipment, real property,
immovables or leasehold improvements, this 90% limit has been
removed. The cost of these assets financed by a loan still cannot
include the cost of labour provided by the borrower or their
employees, but may include the cost of labour performed by a
Where the security is not enforceable, and the lender presents
proof that they performed a site inspection to ensure the assets
financed exist, the Federal Government will share in the loss with
the lender. Under the old program, if the security was
unenforceable the Federal Government did not reimburse the
Reduce the documentation burdens associated with the collection
of all receipts for the purchase of assets or improvements financed
under the CSBFP.
The amendments will not change the maximum interest rate, which
remains prime plus 3%, nor will it impact existing compliance and
enforcement mechanisms, however, it is anticipated that lending
banks will be more willing to extend credit under the CFBFP. Time
will tell if the improvements will actually result in greater
access to financing for small businesses.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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