Overview
The Canada Small Business Financing Program (CSBFP) is a program that facilitates access to financing to small businesses to start-up, expand and modernize. The CSBFP partners with private sector lenders to provide financing that would not otherwise be available or would only be available under less favourable conditions. Small businesses can obtain loans of up to $1.15 million to purchase or improve real property, leasehold improvements and equipment, as well as intangible assets and working capital. To be eligible, borrowers must have annual revenues of $10 million or less. The CSBFP is a national program that operates through a network of financial institutions in all provinces and territories.
The role of the federal government
Innovation, Science and Economic Development (ISED) Canada is responsible for the design and administration of the CSBFP. It reviews and evaluates the legislative and regulatory frameworks and recommends improvements on a periodic basis. It also administers the program by registering loans, collecting fees and paying lenders eligible portions of losses on defaulted loans. ISED, however, is not involved in the disbursement and administration of the loans.
The role of lenders
Private sector lenders are responsible for making all credit decisions, approving and disbursing the loans, registering the loans with the CSBFP and administering the loans. Each lender has its own lending criteria subject to the requirements of the CSBFP. Once the loan is approved, the borrower receives the funds from the lender, not the government. If a loan is in default, the lender must realize on assets taken as collateral before submitting the claim for loss to the CSBFP. Once the lender’s information is reviewed and the claim is approved, the lender is paid 85 percent of the net eligible loss.
Highlights
Recent program changes
Budget 2021 announced improvements to the CSBFP through amendments to the Canada Small Business Financing Act and its regulations, which came into force in July 2022.
The main improvements included:
- Expanding program eligibility to include not-for-profit and charitable enterprises;
- Introducing a line of credit financing option;
- Expanding eligible loan classes to include intangible assets and working capital; and
- Increasing the maximum loan amount from $350,000 to $500,000 and extending the government coverage period from 10 to 15 years for equipment and leasehold improvement loans.
Lending increased to the highest monetary level in CSBFP history
- 5,533 loans were made to Canadian small businesses valued at $1.5 billion;
- Compared to the previous year, the number of loans increased by 458 loans (9 percent), and the value of loans increased by $263.5 million (21.4 percent);
- The average loan size was $270,492, which represents an increase of 11.3 percent from 2021–22;
- Fee revenues were $83 million, which represents an increase of $8 million (10.7 percent) relative to the previous year.
Claims decreased, despite elevated interest rates, likely due to increased consumer demand following the COVID-19 pandemic
- The CSBFP paid a total of 790 claims to lenders representing $64.6 million. These claims were associated to defaulted loans made during the previous 10 to 15 years;
- The number and value of claims paid decreased by 4.7 percent and 14.9 percent respectively compared to the previous year;
- The average claim size was $81,804, which represents a decrease of 10.7 percent relative to 2021-22.
Start-ups and new businesses received the largest share of financing
- Start-ups and businesses operating less than one year continued to receive the majority of loans, which accounted for $1 billion (69 percent).
Leasehold improvements and real property were the most common assets financed
- Leasehold improvements and real property loans represented $815.6 million (54.5 percent) and $345.6 million (23.1 percent) respectively;
- Equipment loans accounted for $323.2 million (21.6 percent);
- Working capital and intangible asset loans represented 7.1 million (0.5 percent);
- The new line of credit product for day to day operating costs accounted for 5.1 million (0.3 percent).
Lending was accessible in every province and territory
Three provinces: Ontario, Quebec and Alberta, represented the majority of overall CSBFP lending in 2022-23, accounting for 4,302 loans (77.8 percent) and $1.2 billion (80.2 percent).
Figure 1 shows lending across all Canadian provinces and territories during 2022-23. The breakdown by regions from highest to lowest volumes is as follows:
- Ontario: 2,180 loans (39.4 percent) totaling $635.9 million (42.5 percent);
- Western Canada: 1,956 loans (35.4 percent) totaling $502 million (33.5 percent);
- Quebec: 1,128 loans (20.4 percent) totaling $296.1 million (19.8 percent);
- Atlantic Canada: 267 loans (4.8 percent) totaling $62.2 million (4.2 percent); and
- Territories: 1 loan (0.02 percent) totaling $398.9 thousand (0.03 percent).