August 24, 2022 | Business Resources

Small Business Loans: A Beginner’s Guide

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Whether you’re looking to launch, improve or expand your business, small business loans are an effective and easy way for entrepreneurs to secure the necessary financial resources for their goals. In Canada, a wealth of private lending options and federal support initiatives have made obtaining financing relatively easy for small business owners.

Here are a few introductory insights into the world of Canadian small business loans. 

New to the world of small business? Check out these entrepreneur-focused resources from our site. 

Canada Small Business Financing Program

In Canada, most small business funding falls under the umbrella of the Canada Small Business Financing Program (CSBFP). The CSBF is a federal initiative designed to make it easier for Canadian entrepreneurs to secure lending for their businesses by partially alleviating the lending risk for financial institutions. There are two primary lending categories for the CSBFP – term loans and lines of credit. 

Term loans can be used for larger business costs such as buying or renovating commercial real estate, purchasing equipment, various intangible assets and general working capital costs. The maximum available amount for term loans is $1.15 million. Alternatively, lines of credit are intended for smaller, day-to-day expenses and carry a maximum amount of $150,000. 

Program Expansion 

As a result of the program’s ongoing success, new and improved elements of the CSBFP were introduced in June of 2022. The new expansions offer greater flexibility to both lenders and small business owners, including additional financing products, new loan classes, increased amounts and terms, better conditions and less overall red tape.

Eligibility Basics

One of the primary advantages of the Canada Small Business Financing Program is its fairly expansive eligibility parameters. Most small businesses in Canada, including start-ups, established for-profit and not-for-profit and charitable initiatives are all eligible to apply for the program as long as their gross annual revenue is below $10 million. Businesses can be sole proprietorships, partnerships, cooperatives or corporations. In some cases, CSBFP funds can even be used to purchase assets from an existing business.

Looking for the perfect place to set up shop? Click here to get new commercial real estate listings delivered directly to your inbox. 

Interest Rates & Other Costs

Like most financial products, small business loans come with interest. For term loans, interest rates may be variable or fixed. Variable rates have a ceiling of the lender’s prime lending rate plus 3%, while the maximum fixed rate is the lender’s single-family residential mortgage rate plus 3%. The maximum interest rate for lines of credit is the prime plus 5%. 

In addition to interest rates, small business loans can also come with additional one-time or recurring fees. These fees are generally paid directly to the financial institution or lender and are not covered by the CSBFP. 

Getting Started

Where to begin with obtaining a small business loan varies on where you are in your entrepreneurial journey and what you intended on using the financing for. However, in most cases, you’ll need to start by presenting your business plan to an eligible lender. In Canada, most major banks, credit unions and financial institutions participate in the Small Business Financing Program. 

Commercial Real Estate Basics

If you’re looking to open up your own business, securing the necessary financing is only part of the equation. Navigating the world of commercial real estate can be overwhelming, especially as a first-time business owner. Luckily, expert support is available. 

The best place to start when searching for the perfect business space is with a hospitality real estate agent. As specialists in the world of commercial properties and business operations, they can help you find a great place to see your vision come to life. They can also offer unique industry insights to help get your business off to a strong start. 

Entering the commercial market for the first time? Check out our Beginner’s Guide to Buying Commercial Real Estate.