Are you ready to take your business to the next level but don’t have the finances available to do so? Perhaps you should consider the Canada Small Business
The Canada Small Business Financing Program makes it easier for small businesses to obtain loans from financial institutions because the government shares the risk. If you are either a start-up business or an existing for-profit small business and your gross annual revenues do not exceed $5 million, then you might be eligible for loans up to a maximum of $350,000 or $500,000 (depending on usage) from this Industry Canada program.
The government shares in eligible losses after realizations on security. Its share of eligible losses for loans in default is 85%. This means, that in the worst of all situations, you will only have to pay back 15% of the loan. This is one of the most generous loss-sharing ratios for any currently active government program.
Of course, like all government programs, the funds must be used for certain expenses – and are prohibited from use for other business expenses.
For the purpose of obtaining up to $350,000, the funds can be used for the purchase or improvement of equipment including business vehicles, and even for renovations to leased properties to purchase or improve commercial properties. If you intend to either purchase or make improvements to existing commercial properties, loans can be obtained for up to $500,000. Among the items that the loans cannot be used for: finance working capital, inventory, labour or advertising.
Loan applications need to be presented directly to a participating chartered bank or credit union (“caisse populaire” in Quebec). That financial institution is responsible for approving the loan and developing a plan for paying it back. As always, you only have one chance to make a good first impression. So, prior to presenting your loan application, you need to be completely ready in every important area. The financial institution will expect a reasonable level of professionalism in your loan application before considering it for approval. You will need to prepare a business plan that addresses:
- Business strategy
- Marketing strategy
- Operational plan
- Cash flow analysis
- Strengths, weaknesses, opportunities and threats analysis
- Human resource plan
- Social responsibility plan
- E-business strategy
- Financial forecasts and other information
- Business exit strategy
Try to be optimistic, while at the same time remaining realistic. This is exceedingly important because your loan repayment schedule will be structured to some extent based on the cash flow analysis found within your business plan.
If you dramatically overstate your potential market, your revenue potential or understate your costs, you will quickly discover (once you are granted the loan based on these incorrect forecasts) that you will have trouble paying back a loan that anticipated a cash flow that was unrealistic.
One of my favourite lines in any song is “life is what happens to you while you’re busy making other plans” (from John Lennon’s song Beautiful Boy, aka Darling Boy, 1980). This is sometimes how I feel business works. We make a plan defining what our goals and objectives are for the next one to five years, and then along comes a customer or a potential customer with an opportunity that changes everything. It’s important to bear this in mind when making your plan.
A good yet cautious rule of thumb is to assume that you will not be able to devote the amount of time and energy to the plan that you had originally hoped. On the other hand, if you understate your expectations, you may not get a banker to see the potential rainbow at the end of the project.
Finally, gather as much marketing intelligence as you can. Has this idea already come to fruition somewhere else in the world? Can you learn from that success or can you explain the failure and safeguard against it? Do your homework and be optimistic, but also be objective. The government is willing to share the risk. That’s a great partner to have – one with deep pockets and with only the expectations that you outlined to them in the first place.
To learn more about this program, you can consult the Industry Canada website at www.ic.ca/csbfp and of course you can always contact the author by email at firstname.lastname@example.org or phone 1-888-816-0222, Ext. 102.