Why you should look to government for a loan, first

3 min read

Whether you need some cash to get your business up and running, take on new markets, or start a project, chances are you’ll find the most affordable options from the government. There are lots of different types of loans in government, as well as loans from crown corporations, such as the Business Development Bank of Canada and Export Development Canada.

Types of small business loans:

No-interest loans

No-interest loans, like the Business Development Program, are repayable financial contributions made by the government where no interest is applied to the money borrowed.

Low-interest loans

Low-interest loans, like the Advance Payments Program, are repayable contributions, but typically the interest rate is lower than what you’ll get through a bank.

Conditionally repayable loans

Conditionally repayable loans, like some of the programs available through the Canadian Media Fund, may have interest attached, but are repayable based on conditions agreed upon in the contract, like success of the project.

Guaranteed loans

Guaranteed loans, such as the Canada Small Business Financing Program and the Export Guarantee Program, are a type of loan that you can apply for through your financial institution, where the government acts as a guarantor, and ultimately shares the risk with the bank.

Our top tip for getting approved for a government loan: make sure you can show how your objectives align with the funding program’s goals.

Make government your first stop when you’re looking for a loan

It might be simpler to go to a bank for a loan, but it’s not always the best option. Our Innovation Advisors generally recommend that a business explore government loans first.

Here’s why:

  • In general, government contributions are interest-free or lower than what your bank can offer.
  • Flexible repayment terms. The government has more patient capital, so when it comes to repayment terms you will likely have more options.
  • Government loans usually come with additional support such as strategic planning or advice.

On the other hand, government loans have their own set of considerations:

  • Competition is high and contributions are developed to support projects, not companies.
  • You usually don’t get the money right away. You may have to make claims for reimbursement.
  • Not all project costs will be supported.
  • You may have to have financing from other sources outside of government to contribute towards the project.
  • The due diligence process is much more robust, because the money comes from taxpayer dollars.

Here’s our best advice to get to yes:

  1. Start with a comprehensive, personalized list of loans and study their eligibility criteria to make sure your project is a good fit. This will also help you get a clearer understanding of what project costs are eligible, so you don’t get stuck covering unexpected bills.
  2. Get familiar with stacking rules. Stacking is when you get money from more than one government program, and while some programs allow it, many don’t.
  3. Your business plan is your elevator pitch to the bank, and government programs will want to see it too, so make it as compelling as you can. There are plenty of great tools out there to help you craft a winning strategy. We love this interactive business planner from Futurpreneur.
  4. Know your numbers. You’re going to need financial projections and a solid understanding of your target market and competitors. We have a financial performance tool that can help you get started on market analysis.
  5. Lastly, know what you want… and what you need. Always have a range. Think about the minimum and maximum amounts that could work for your business and be flexible, but at the end of the day, have a clear idea of your bottom line and stick to it.

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Our Innovation Advisors can help. Get connected through our contact centre at 1‑833‑201‑4358 |TTY: 1‑866‑694‑8389, or send us details about your business. We’re committed to prompt and reliable service standards, and can respond to most inquiries within 24 hours.