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 subcontractor.
  • 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 lender.
  • 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.

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