How do I get a government loan for a small business in Canada?

If you expect a small business government loan to mean filling in a federal form and waiting for a cheque, the federal Canada Small Business Financing Program does not work that way. Innovation, Science and Economic Development Canada describes it as making it easier for small businesses to get loans from financial institutions by sharing the risk with lenders. The loan itself comes from the lender. That changes where you start: with a conversation at a bank, credit union or other lender, and with a clear idea of what you want to finance. This guide explains the federal program, who it is written for, what it can pay for, and where BDC sits beside it.

Start with your lender, not a government form

The program’s own page tells owners what to do: when talking to your financial institution about a line of credit or loan, ask about the CSBFP. The government shares the risk, but the lender is the one you apply to, so it is the lender that can tell you whether your request would be made under the program. Ask that question directly, and ask what the lender would need to see from you. You can put the same question to more than one lender. The program page also has a find-a-lender tool if you do not know where to begin.

Who counts as a small business

The Canada Small Business Financing Act defines a small business as a business carried on or about to be carried on in Canada, with an estimated gross annual revenue not exceeding a limit set in the Act or any lower amount prescribed by regulation. The words “about to be carried on” matter if you are still starting up. The program’s guidelines also contain a list of ineligible small businesses, and farming is one of the examples they give. Read that section of the guidelines before assuming you qualify, and check the current revenue ceiling there rather than relying on a number you saw elsewhere.

What the program can help pay for

The guidelines organize eligible costs into categories, including leasehold improvements, equipment and working capital costs. A line of credit option for working capital was introduced in 2022. The program page says the financing could be used for working capital costs, intellectual property, renovations, equipment and more. Ineligible expenditures are listed separately, so a cost that sounds ordinary may still be excluded. Bring your lender the specific list of what you plan to buy and ask it to check each item against the guidelines.

If the money is for buying a business

The guidelines cover the purchase of all or substantially all of the assets of a going concern, and they list goodwill as eligible when it is part of a going concern purchase. They define a going concern as a business that carried on operations within 60 days before the purchase or, for a seasonal business, during the season before it. Two limits matter for buyers. The guidelines say the acquisition of shares is not eligible, and that when a vendor finances part of the price, that portion is not eligible for a CSBF loan. Our guide on the CSBFP for buyers goes through those rules in more depth.

BDC is a separate route

BDC offers its own financing, described on its own site, apart from the CSBFP’s lender-based route. It has a Business Purchase or Transfer Loan, which it describes as intended to finance the acquisition of an existing business with revenue and an established client base. Asked whether you can get prequalified for a loan to buy a business, BDC states that it does not offer prequalification. If you are comparing routes, put the same information in front of a bank asking about the CSBFP and in front of BDC, and compare what each would actually offer you in writing.

Compare more than the headline offer

Whichever route you take, ask for the terms in writing and compare them side by side: what security the lender wants, whether it asks for personal guarantees, what fees apply, and how repayment is structured. The program’s guidelines discuss personal guarantees and lender security in detail, so you can read what a lender is allowed to take under the program and ask it to explain anything beyond that. Keep notes of each answer. A loan that is easy to get but hard to carry is not a good fit, and only you and your advisors can judge that for your business.

What to prepare before you ask

• A written description of what the money buys, item by item, so the lender can match each cost to the program’s eligible categories.
• Your most recent financial statements, or a forecast if the business is new, since the Act covers a business “about to be carried on”.
• For a purchase, the draft agreement and a note on whether you are buying assets or shares, because shares are not eligible under the guidelines.
• Any vendor financing you are negotiating, kept separate from the amount you want the lender to fund.
• Questions for the lender about security and personal guarantees, and what each would mean for you if the business struggled.