What can a small business loan be used for?

What you can get a small business loan for depends on the product, because each has its own permitted uses. The Canada Small Business Financing Program (CSBFP) spells them out in its guidelines. BDC describes its own loan types on its product page. Check the permitted use before you apply, and ask the lender what happens if funds go to something outside it.

What a CSBFP term loan covers

The guidelines list real property, leasehold improvements and equipment, with conditions for each; a real property loan, for example, requires the borrower to own or be acquiring the property and to use a minimum share of its area for the business. The program page adds purchasing or improving new or used equipment, including commercial vehicles. Since July 4, 2022, a term loan can also finance intangible assets and working capital costs, subject to a limit the guidelines set for that portion. The intangible assets list includes goodwill if it is part of a going concern purchase, which matters if you are buying an existing business.

What a line of credit covers

The program page says lines of credit can be used to finance working capital costs, meaning the day-to-day operating expenses of the business. The guidelines describe working capital costs as funds needed to cover those expenses, and they require the borrower to confirm in the registration form that the line will be used only for that. To compare the two products, see term loan vs line of credit.

What BDC offers

BDC’s Small Business Loan page lists uses such as buying inventory, developing new products, launching a marketing campaign, paying suppliers, hiring or training employees and expanding into new markets. BDC lists its Working Capital Loan and Equipment Loan as separate products. The CSBFP guidelines list ineligible expenditures too, including the acquisition of shares and any part of the price the vendor finances. They also say an individual or corporation that buys real property only to rent it out is not an eligible CSBFP borrower. If you are buying a business, ask the lender in writing which parts of the price a loan can fund.