A GUIDE TO THE CANADA SMALL BUSINESS FINANCING PROGRAM

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1 A GUIDE TO THE CANADA SMALL BUSINESS FINANCING PROGRAM The Canada Small Business Financing Program (CSBFP) is a government initiative administered by Industry Canada that is designed to help launch new small businesses and expand existing small businesses. In a nutshell, the program encourages financial institutions to make funds available to small businesses by sharing the financial risk with the lenders (Industry Canada guarantees 85 per cent of eligible losses should a loan go into default). The program is especially popular with start-ups and new businesses the type of venture that has traditionally struggled to secure funding because it might not have the credit history or the collateral required to obtain a loan. Brand new businesses aren t always the most welcomed customers when they walk through the bank doors, says Corinne Pohlmann, Vice President, National Affairs for Ottawa-based Canadian Federation of Independent Business (CFIB). CFIB is a small- and medium-sized member-based business organization that advocates on behalf of organizations across Canada. The federation boats 108,000 small business owner members in every province and in every sector of the economy, and it deals with issues at all levels of government. The problem new business owners face with banks, she explains, is that you have no history in which to base it on, or sometimes certain sectors are considered to be higher risk. While Industry Canada runs the CSBFP, the actual credit decisions are made by private sector financial institutions across the country. Not only do these financial institutions make and administer the actual loans, but they are also responsible for providing the loan funds and registering the CSBFP loans with Industry Canada. As part of Canada s Economic Action Plan, the maximum loan available through the CSBFP was increased from $250,000 to $500,000 in April 2009, however, a maximum of $350,000 of this financing can be used to buy equipment and make leasehold improvements. PROGRAM HISTORY The Canada Small Business Financing Act was created in 1999 as the successor to the Small Business Loans Act, which was established in As such, 2011 marks the 50th anniversary of the program. While the program has undergone some changes since it started (most recently in 2009 as part of the Economic Action Plan), the fundamental structure and goals of the program remain the same.

2 The Economic Action Plan changes came into effect as of April 1, 2009, when Industry Canada announced a few key modifications to the Canada Small Business Financing Program, most notable among them the doubling of the maximum loan from $250,000 to $500,000. The liability ceiling for lenders was also upped, from 10 per cent to 12 per cent, while some regulatory amendments were made to the program, designed to reduce administrative burden and streamline processes. The Canada Small Business Financing Program undergoes a statutory review every five years, the last period of which covered 2004 to After each five-year period, a report detailing the economic impact of the program is submitted to Parliament. PROGRAM PURPOSE The Canada Small Business Financing Program is designed to achieve the following goals: Assist new businesses in getting off the ground. Lend a hand to existing businesses that are looking to grow or make improvements. Enhance access to funds, traditionally a difficult proposition for small businesses. Help spur economic activity and job creation within Canada. The CSBFP also benefits financial institutions, increasing their client base with customers that might otherwise without the government guarantee of the loans not have been able to steer as much business their way. The CSBFP is primarily used by start-ups, and small businesses in the food and beverage, retail trade, transportation and warehousing, and manufacturing sectors, explains Stefanie Power, Industry Canada media relations. QUALIFICATIONS To be eligible for a Canada Small Business Financing Program loan, you must be a for-profit Canadian business (farms, charitable organizations and religious institutes do not qualify) that resides within the country. For agricultural businesses, Agriculture and Agr-Food Canada runs a similar program called the Canadian Agricultural Loan Act, Power says. The annual gross revenue of the business must not exceed $5 million. It s targeted to a very specific population based, says Mike Michell, National Director, Small Business at

3 Michell is in charge of the RBC unit that handles small business clients, defined by the bank as those that have financing needs of less than $250,000. In cases where clients need more funding than that, the bank s commercial division will oversee them. Funds from a Canada Small Business Financing Program loan can be used for the following: purchase or improve land or property; make leasehold improvements or improve leased property; buy new equipment or make improvements to existing equipment; or finance the one-time program registration fee of 2 per cent. All financed assets must be used to carry on business within Canada. Note that while the maximum loan to purchase property is $500,000, there is a cap of $350,000 for loans ticketed for leasehold improvements or equipment purchases. Any loan will cover a maximum of 90 per cent of the costs. The lenders need to take security in the assets that are financed and they have the option to take an additional unsecured personal guarantee, but that cannot exceed 25 per cent of the total loan. Corporate guarantees are also optional. The following items are eligible leasehold improvements: water supplies and drainage systems; display cases; moulds used for production; dies and jigs; landscaping; paving of parking areas; access sidewalks; fences; wood lot (timber must be capitalized); and architectural, engineering and design fees related to the project being financed with the loan. However, these items are ineligible for a CSBFP loan: working capital; improvements to a family dwelling for non commercial purposes; purchase of shares in a corporation; permits and licenses used in the operation of eligible assets; franchise fees; feasibility studies; professional fees (for instance, legal, accounting and appraisal); survey costs; building permits; vehicles for personal use; supplies (for instance, paper, staplers, pens, uniforms, erasers, menus, photocopies); intangibles (for instance, research/ development costs, prepaid expenses, goodwill); improvements to real property or immovables, where the vendor as the owner of that real property or immovable is selling those improvements; and labour costs of the borrower, its employees, shareholders and directors of a corporate borrower. THE PAPER TRAIL The government requires proof for all expenses related to a Canada Small Business Financing Program loan, so it s vital that you retain all receipts and purchases orders.

4 INTEREST RATES AND REPAYMENT TERMS Specific interest rate and repayment terms will be worked out between you and your financial institution, but Industry Canada mandates that the maximum term for any Canada Small Business Financing Program loan is 10 years, and the minimum amount of payments of interest and principal is one per year, although generally these loans tend to be five-year terms with monthly payments. It s also important to note that, according to the Industry Canada Small Business Financing Program guidelines, if you go with a floating interest rate, the maximum is the lender s prime rate on each day of the loan term plus 3 per cent (which includes the 1.25 per cent annual administration fee). If you opt for a fixed rate, the maximum is the lender s single family residential mortgage rate plus 3 per cent (again, including the 1.25 per cent annual admin fee). The administration fee is a government premium baked into the interest rate, Michell explains, and is there to help offset the cost of running the program. You may be able to secure lower rates than that, depending on your financial institution. Pohlmann suggests that because CSBFP loans are higher risk by their nature, they will have a higher interest rate associated with them. There is also a 2 per cent registration fee for every CSBFP loan, which you may choose to finance. In cases where the registration fee is financed, the maximum loan amounts would include the fee. Determining whether interest rates are higher for a traditional loan or for a CSBFP loan is tricky business. There s no simple answer, because every case is unique. Each client is evaluated based on how the company is looking or how the performance of the company is doing, Michell explains. So if you have a company whose performance is very strong, well, then they might be able to get a very competitive rate because there s no government premium involved if they just went for financing on their own. When you add the premium the interest rates could be higher, he says. And when we re looking at borrowers that may not have as strong financial statements but can still meet the obligations, then there is the premium that the government charges on that interest rate. So it could potentially be higher, but not in all cases, he says. Shopping around to different banks is always advisable, but Michell says that all the main FIs offer very similar interest rates on government guaranteed loans. Even if the interest rates may be a bit higher under a CSBFP loan than a traditional loan, it s a much better option than the alternative, Pohlmann says.

5 They will price to risk, and we would prefer they price to risk than not provide loans at all. It s a better way to go. You re better off getting some money even if it s a higher cost than not getting any money at all. BENEFITS Funds for businesses that might otherwise have a tough time receiving financing The CSBFP helps fill a gap in the marketplace by helping creditworthy small and medium sized businesses secure loans from private sector lenders loans that would not otherwise be available to them, or be available only under less advantageous terms, says Power. You can end up doing a deal that you might not otherwise have done through the bank, which is typically a little stricter on their lending requirements, O Leary says. Access to funds with reasonable interest rates It s a loan, but the nice thing about the loan is that it s at a fairly good prime rate, says Sean O Leary, CEO of Toronto-based SafeTech Alarm Systems. Limited personal exposure When you default on a traditional bank loan, you ll be on the hook for the entire amount. But with a CSBFP loan, because it is backed by a government guarantee, you ll only be responsible for 25 per cent of the loan should it go into default. That s why the program s so good, because the government steps in and says we ll guarantee the loan, O Leary says. 90 per cent financing CSBFP loans will offer financing of up to 90 per cent of the assets purchased, meaning your total cash outlaw will be minimal. One of the key things was around (a) it allows me to put down 10 per cent instead of potentially more, so 25 per cent as an example, so it frees up some of my cash flow; and (b) it helps me really get kick-started in that respect, so it helps the entrepreneur really start off, Michell says. Retroactive claiming Business owners have up to six months after making a purchase to apply for a CSBFP loan that would still qualify for that purchase. This is a major benefit in cases where a company has a chance to bid on a contract, but needs to purchase equipment to win the deal and expediency is vital. Michell says he had a car parts manufacturer client that was in that very situation.

6 Now the problem with that is as soon as you do that, you jeopardize your day-to-day cash flow potentially. The neat thing about this government program as well is you can retro six months to say I may have bought the piece of equipment four months ago, I had to capitalize, it was a great opportunity, he explains. So it doesn t need to stop your momentum if you re in the midst of seizing an opportunity, Michell says. TOP NINE PIECES OF ADVICE TO ENSURE A SUCCESSFUL APPLICATION Try to get a traditional bank loan first Pohlmann recommends exhausting all avenues of traditional bank funding before attempting to secure a CSBFP loan, which are generally targeted towards higher-risk borrowers and, therefore, may have slightly higher interest rates associated with them. Michell, however, suggests that it s not as black and white as that because situations may dictate that a CSBFP loan is a better option than a conventional loan in some cases. It would depend on a couple of things. Number one is if people are looking to put less down payment for various reasons to maintain their cash flow, the government program is a great way to go. Again, you can go up to 90 per cent financing, he says. The other piece is if you re looking at limiting your personal liability or personal signature on the deal, it s a maximum of 25 per cent personal guarantee. So a lot of it will depend on what the priority for the client is, or what the company can absorb or what the company can do. Shop around I think you should try for the traditional bank (loan) and go to a number of them and figure out which one is going to provide you with the best deal. If you get turned down by all of them, you should be able to ask any of those banks about the CSBFP, Pohlmann advises. Have a good credit history Normally, O Leary says, banks are looking for collateral and someone that s got a good track record, a high Beacon score. For established companies, banks will look at the corporate history, but in the case of new businesses, they have to do it on the individual. Have the assets to borrow against O Leary says banks want someone that s got assets that they can pledge against the money they borrow.

7 Have a solid business plan The experts were universal in stressing the importance of being armed with a good business plan before you walk into the bank with hat in hand looking for money. While a business plan would be different for every company, Pohlmann says, from a general perspective it should address the following: What are you looking to invest in? How are you going to do it? Who are you markets? How are you going to market to them? How are you going to make your product? How much is it going to cost to make your product? If it s a service, how are you going to price your service? What are your growth projections? There are lots of different details that you should have somewhat of a knowledge of by the time you walk into the bank and ask them for money, she says. Michell says that s exactly what the banks are looking for in a successful candidate a business that knows what its plan is. Help us understand what the business case is. So if you have a good business plan that helps articulate that, that will be key to help us understand what the actual deal is. And with some projections, that would definitely help. And we also want to understand the capacity of the person to meet the 25 per cent personal guarantee, he says. So if you have that information the articles of incorporation then we d start to analyze the file, maybe there might be some more questions, but it s really about helping us understand what it is the company does, what the company is looking to do, what the money is for, and then provide us some information or some background around financial projections or historical financials so we have a good understanding there, Michell says. And then we move forward with that. Have a complete understanding of your business and financial needs The exercise of creating a business plan will go a long ways towards helping you achieve this goal.

8 As a result, Pohlmann advises business owners to understand what your own finances currently are, what your financial needs really are going forward, because (the banks) probably will ask you lots of questions about how you re going to use the money they lend to you and how you re going to pay it back. So be really clear on how that is going to work. Do your homework First, research government and what programs are available and then find out which program is suitable for your particular application, O Leary suggests. Be thorough and professional Make sure that you properly and thoroughly fill out the forms, O Leary says. Business owners will find themselves jumping through the various hoops that the government and the bank will want you to go through and you have to do that sort of step by step professionally, he advises. Give yourself enough time to get this loan Where timing is a factor because, for example, you need to buy equipment for a contract opportunity, remember that this loan will generally take longer than a conventional loan, Michell says. The process for the government guarantee requires us to send documentation over to the government; there could be a bit of a timing issue as well, he explains. So the one thing I would say is if time is of the essence, we need to be very mindful of that so an entrepreneur that s thinking of doing this, it s a great program, allow yourself reasonable amount of time or if you have alternatives and you want to backtrack and take advantage of that six months (for retroactive claims), think about that. The last thing we d want to do is see an opportunity for an entrepreneur get lost because of timing. Michell suggests that a CSBFP loan could go three weeks, it could be a bit more. It s not excessive, but it s something to keep in mind. He recommends submitting the required bills up front then it could be relatively quick. I d say it might be adding a week or two. TOP EIGHT REASONS YOUR APPLICATION COULD BE REJECTED Not doing your homework A business plan that doesn t make sense, is a sure fire way to have your loan rejected, Watson suggests.

9 Not having enough assets If the prospective borrower is not strong enough financially, Watson says their application could fail. You have to have money, because you have to put money in, that s a big lending criteria here. So if you have no money, then you re not going to get money, O Leary says. Bad credit history O Leary says having a poor credit rating is a sure fire way to get rejected. Michell confirms the importance of your financial past. Credit history definitely plays an important part and it s very important to show the capacity to pay, your history of repayment, he says. Could things have potentially happened in the past? Yes, but then we ll need to understand what that was and how it s been rectified or if it s been rectified. So credit history is very important because a lot of what we do is based on past performance, but we also want to look forward. But we also want to understand what is the capacity and the historical tendency to pay. Filling out the forms incorrectly If you don t fill out the proliferation of necessary paperwork properly you re going to get rejected, O Leary says. Not being thorough and professional You have to be professional, you have to be thorough, you have give them lots of information. Dot your I s, cross your T s. So you just have to be thorough and detailed, O Leary says. Not being able communicate the business plan If someone were to walk in and we don t really know what the business does or how the financing will work or how it will get repaid, then that becomes a bit more challenging, it will take a bit more time, Michell says. Not providing enough information What makes something take more time in that case, if there are projections to back up, how will this all work in the grand scheme of things, so do we understand (a) how the company is currently operating and (b) how will this impact the future cash flows of the company and how does this fit in within the growth strategy of the company, Michell says. Is this part of what the company currently does, is it a takeoff for a company? Without that type of information, it becomes very difficulty to assess is this reasonable type of thing, he adds.

10 Inability to handle the increased debt load The last thing you want to do, you don t want to put a debt on the books that the company won t be able to repay, or that the debt is going to strangle the company so that at every month if something pops up, that they re continually strapped for cash and then they end up writing cheques that they re having trouble funding at the end of the day, Michell says. FAQ Below is a list of the most common questions applicants will ask and the corresponding answers. Q: As a small business owner, where do I go to apply for a Canada Small Business Financing loan? A: The program is delivered through financial institutions across Canada, so Industry Canada is not involved in the decision to approve or reject your loan application. Q: Who are the lenders? A: Any member of the Canadian Payments Association is eligible to offer CSBFP loans and the following financial institutions are all participating lenders: ATB Financial, Bank of Montreal, Caisses populaires Acadiennes, Caisses populaires de l Ontario, Canada s Credit Unions, Canadian Imperial Bank of Commerce, Canadian Western Bank, GE Capital Financial Services, HSBC, Industrial and Commercial Bank of China (Canada), Laurentian Bank of Canada, Mouvement des caisses Desjardins, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Canada Trust. Note that the ultimate decision to lend funds under the CSBFP is at the discretition of the financial institutions. Q: What kind of paperwork do I have to complete? A: To arrange for a Canada Small Business Financing loan, you must contact one of the financial institutions in the answer listed above (Who are the lenders?). The forms, which are filled out and submitted to Industry Canada by the lender (your financial institution), include: Loan registration form; Request for the Transfer of a loan between lenders; Claim for loss; Request for extension of claim submission date; and summary of eligible costs. Note that not all of these forms are required in all situations. Your banker will advise you about which forms need to be completed. Q: What can I use a CSBFP loan for? A: You can use this loan to purchase property or improve existing property, to make leasehold improvements or improve lease property, or to purchase new equipment or improve existing equipment. You cannot use the loan to finance items such as goodwill, working capital, inventories, franchise fees or research and development.

11 Q: How much can I get? A: The maximum loan under the CSBFP is $500,000, of which a maximum of $350,000 can be used to perform leasehold improvements or purchase equipment. Financing is available for up to 90 per cent of the cost of the assets. Q: How much will the loan cover? A: CSBFP loans cover a maximum of 90 per cent of the costs of asset purchases or improvements. Q: How do I know if I m eligible for a CSBFP loan? A: Any small businesses (either a sole proprietorship, partnership or corporation) that is operating for profit within Canada that has annual gross revenues of less than $5 million is eligible. Exceptions include: farms, charitable organizations and religious institutions. Q: What is Industry Canada s role? A: Industry Canada designs the program and related legislation and provides information to participating financial institutions. It also registers all the loans and collects the registration and administration fees. In the case of defaulted loans, Industry Canada will review claims for losses from the financial institutions. Q: What happens in the case of a defaulted loan? A: The borrower is responsible for paying 25 per cent of the loan, and the lender, once they have realized all securities and guarantees, will submit a claim for loss with Industry Canada. Of the eligible losses, Industry Canada will cover 85 per cent, and the lender assumes responsibility for 15 per cent. Q: What are the interest rates? A: This will vary on a case by case basis, based on the bank and the specific borrower, but the maximum for a variable interest rate is the lender s prime rate plus 3 per cent. For a fixed interest rate, the maximum is the lender s single family residential mortgage rate plus 3 per cent. In both cases, the Industry Canada annual administration fee of 1.25 per cent (which is submitted by the banks) is included within those rates. Q: What other fees apply? A: Industry Canada requires a one-time 2 per cent registration fee for all CSBFP loans, a fee which is submitted by the banks. This fee, installed to help offset the cost of the program, may be financed as part of the loan. Q: What are the loan terms? A: The maximum term of a CSBFP loan is 10 years, although most will generally have a five-year term. Q: Can I apply for a CSBFP loan regardless of where I live in Canada? A: Yes, there are eligible lenders in every province and territory across the country.

12 CANADA SMALL BUSINESS FINANCING PROGRAM GLOSSARY Here are some important terms you will come across as you explore the possibility of securing funding under the Canada Small Business Financing Program. Borrower: this refers to the person that carries on or is about to carry on small business that receives the loan. Conventional loan: This is a loan that is not subject to the Canada Small Business Financing Act or the Small Business Loans Act (which was the predecessor legislation). Default: This is when the borrower fails to comply with the conditions of their CSBFP loan agreement. Eligible cost: This is the amount indicated on a paid invoice or purchase order, not including any refundable taxes, grants or discounts. Guarantee: Under Common Law, this is a pledge by a legal entity to answer for all or a part of the borrower s debt. Improvement: This includes construction, renovation and modernization or the installation of equipment. Loan term: This is the period of time, as prescribed within the loan agreement, over which the total amount of the loan must be repaid. Proof of purchase: This is the documentation required to prove expenses that are included in the financing of a CSBFP loan. This may include deeds of sale, invoices or purchase agreements. SUCCESS STORY Craig Watson used the Canada Small Business Financing Program a couple of years ago to secure an $80,000 loan to help him open a Toronto-area bar. He and his partners contracted an accountant to prepare a business plan that they took to the bank in an effort to obtain financing. Watson said the key for the bank was determining that they would make good on the loan. You have to demonstrate to them, through assets, that you re capable of paying it back. He said the interest rates they secured were pretty competitive. Watson thinks the program is a great idea considering there aren t a lot of other places you can go to get a loan for a small business. Sean O Leary, CEO of Toronto-based security system provider SafeTech Alarm Systems, has leveraged several different government grant and loan programs throughout his career, most recently availing of the CSBFP as part of the same group that purchased the bar with Watson.

13 BY THE NUMBERS Here are a few pertinent Industry Canada statistics about the Canada Small Business Financing Program. All numbers are for the year unless otherwise specified. There were 7,441 CSBFP loans issued. $956 million worth of loans were issued, with the average loan size being $128,561. New businesses/start-ups accounted for the lion s share of the loans, receiving 58 per cent ($550 million) of the funding. 74 per cent of the total value of the loans went to businesses with annual revenues of $1 million or less. Nearly half the loans (46 per cent) were used to purchase equipment. Almost a third of the loans (31 per cent) were employed by the business to make leasehold improvements. The remainder (23 per cent) of the loans were ticketed for the purchase of real property. The accommodation and food services sector has been the main beneficiary of CSBFP loans for some time, and in this period this industry accounted for 29 per cent of the total value of the loans issued. The CSBFP web site had over a quarter million visitors. Companies that received a CSBFP loan estimated that the loan helped them create 17,356 jobs (an average of 2.3 jobs per loan). In the period between 1999 and 2010, Industry Canada paid lenders $113.2 million for 1,968 claims on defaulted loans (an average of $57,532 per defaulted loan). Over the same period, Industry Canada collected $52.4 million in revenue from the 1.25 per cent administration fee associated with CSBFP loans. According to a 2009 study by Canada Works Limited, 80 to 85 per cent of CSBFP loans were incremental, meaning that these loans would otherwise not be available for small businesses, or would only be obtained under stricter terms (i.e., higher interest rates with greater collateral needed). 847 of the loans made under the CSBFP last year (over 11 per cent of the total loans) were for more than $250,000. POST-SUBMISSION A financial officer will review any business proposals and make a decision on the loan application. If a financial institution decides to offer financing under the program, the financial institution will register the loan with Industry Canada, explains Industry Canada s Power.

14 You d usually follow through with the banker, Michell says. Once the bank approves, which is usually a pretty standard process for us so that should happen relatively quickly, then it s a question of once you start submitting the bills, we work it through the way we would a standard loan. If the news is bad, you ll get it a lot quicker, he says. If, unfortunately, we can t move forward with the deal, the client would know within a day or two. OVERALL IMPRESSIONS OF THE PROGRAM CFIB s Pohlmann believes the program does have it flaws (see Criticisms of the Program, below), but overall is an excellent tool for small business owners. We believe it plays a really important role and continues to be of value to the small business population that really probably still one of the biggest issues any business owner confronts in running their business is access to financing, Pohlmann says. So having more resources in which they can go after that kind of financing I think is important. And this (program) has always played an important role and it s a loan guaranteed program which we much prefer over a subsidy or something like that, so it allows people to have the opportunity to eventually pay it back, but still access funds they might otherwise never have been able to get, she says. It is up to the banks to drive this thing. There are ways the government can make it a little more attractive for them to do so, but not at the risk of them letting go of their fiduciary responsibilities, because ultimately the government has to make sure that they re not just giving loans to everybody, that there is going to be some benefit that comes out of this, Pohlmann says. And while there certainly is a deficit in this particular program, that s not taking into account all the businesses that did succeed using the program and the taxes they re now paying and the employees they now have and all that rest of it. So that s the incremental side of things that doesn t get calculated into those amounts. That s the real beauty of these types of programs, she adds. I think it s a great way to help entrepreneurs who are starting out who might need a little bit of assistance to get going, I think it s a great way to do it, Michell says. CRITICISMS OF THE PROGRAM The Canada Small Business Finance Program has come under some fire in the media (see media coverage below) because it has operated at a deficit and banks are reportedly not enamoured with the proliferation of paperwork associated with loans under this program. Industry Canada s Power offered up her take about the program s cost recovery.

15 Since its inception, the CSBFP has not been cost recoverable when purely looking at revenues generated versus claims paid on an annual basis, she says. As costs are directly proportional to the risk inherent in the CSBF Program portfolio of loans, it is not surprising that an increase in the overall portfolio risk combined with a downturn in the economy has led to lower levels of cost recovery, she explains. However, Power adds, while the program is not fully cost-recoverable when strictly examining revenues from the administration and registration fees it charges, a 2009 evaluation of the program by KPMG found that it is cost-recoverable when additional federal income taxes and GST remittances from CSBF borrowers are considered. In addition, KPMG s analysis of the costs and benefits of the program found that over a nine-year time frame analyzed, from to , net benefits from the program totalled nearly $4.9 billion. Michell concedes that there is more paperwork associated with a CSBFP loan compared to conventional loans, but that it s not something that would prohibit banks from going this route. At the end of the day, is there more paperwork? Yes, and the government is providing the guarantee. The ultimate for us is can we help the company, can we do the financing, can we make sure we meet the client s needs, so if there s more paperwork, you know what? We ll figure it out, he says. For us, it s more of a question of did we put forth a solution that s viable for the client? So more paperwork, I agree, at the end of the day, though, if the client can walk away and we can help them out, then that s the name of the game, he says. Another concern about the Canada Small Business Financing Program is that it s simply not prominent enough so few people seem to know about it. Its relative obscurity raises the question of how aggressively banks bring this option forward to their clients. Pohlmann says this program is not well known at all, and she doesn t under why. She says the CFIB believes this is a choice the government has made and it s an issue they ve spoken to the feds about because we feel it s a really important program to have. Access to financing for smaller firms is always an issue, especially with higher risk ones, and this is part of a role we believe government needs to play. But the fact of the matter is that financial institutions are really the guardians of the CSBFP, and the government plays no role in deciding who gets a loan. Then again, the fact that the government isn t picking winners and losers here may not be a bad thing because the government is often not very good at doing that, she says. However, she wonders just how much banks are pushing the program to its clients, even though it s the bank s duty to tell you what other options are available.

16 They are supposed to, under their code of conduct in the banking industry, tell you about it if they have refused you for a loan, and then put you through that system to see if you d be eligible for that type of a loan, she says. Michell says his bank frequently presents the plan to its clients. I could say it s actually something we put forward on a regular basis to customers because it s a great option for them. If it s a deal that we know there s something there and we need to help it get through, we actually do quite a bit of this program. When the client is not a good match for a conventional loan, the banker would usually turn around and say you know, here are the options available to you, he says. It s not a case of this loan being presented once all other options fail, he adds. I wouldn t say you d get a decline and then this would be brought up; it would be a financing option that would be brought up in lieu of. Pohlmann even suspected that there could be cases where borrowers are given CSBFP loans and aren t even aware that they are on government-backed loans. Most people have no idea it even exists and my question is whether or not those that have some of those loans even know or understand that it s backed by the Canadian government, she wondered. However, Michell says that s not the case at all. It would be pretty straightforward and upfront, he says. Because there is the 2 per cent government registration fee with a CSBFP loan, there s no way the customer wouldn t know, Michell explains. MEDIA COVERAGE Here are a few recent articles in the Canadian media about the Canada Small Business Program. Vancouver Sun, February 25, 2011 This article was mostly positive about the program, but based on the headline, the writer clearly wondered why so few people are aware of it. Full article is here: canada-small-business-financing-program-few-know-it-exists.aspx NEBS, February 21, 2011 This article discussed the program s mounting losses. Full article is here: fund_reached_record_loss_claims_last_year$1123.html

17 Toronto Star, November 29, 2010 This article discussed the case of a Richmond Hill man that was charged with fraud related to CSBFP loans and suggested that the program allows banks to loan money with lax or no controls. Full article is here: Globe and Mail, January 5, 2010 In response to a KPMG report about the CSBFP, this Canadian Press article discussed how the program was losing money and was not well liked by the banks. Full article is here: Gov Monitor, October 22, 2009 This article lauded the government for providing small businesses with additional access to funding. Full article is here: Toronto Star, January 28, 2009 This article discussed the proposed federal budget, which at the time included the increased maximum CSBFP loan. Full article is here: Ottawa Citizen, September 5, 2008 This article outlined the charges in a CSBFP fraud case that involved 10 Ontario residents and two U.S. citizens. Full article is here: e1b9ee3b46e5 CONTACT INFORMATION Industry Canada info@ic.gc.ca Telephone: Toll-free: (Canada) TTY (for hearing-impaired only): (toll-free) Fax: Business hours are 8:30 a.m. to 5:00 p.m. EST, Monday to Friday.

18 Mailing Address: Industry Canada Web Service Centre Industry Canada C.D. Howe Building 235 Queen Street Ottawa, Ontario K1A 0H5 Canada USEFUL LINKS Here are a few links that small business owners interested in obtaining a loan under the Small Business Financing Program will find useful. Canada Small Business Financing Act: The Department of Justice act which was enacted in April 1999 to replace the Small Business Loans Act. The purpose of this program is to simplify loan administration, achieve improved cost recovery and offer financing to small businesses that might otherwise have a tough time obtaining funding. This act, along with its regulations, constitute the legal authority for the Canada Small Business Financing Program. Here are the regulations for the Canada Small Business Financing Act: CSBFP Loan Registration form: this is the form that your financial institution will fill out on your behalf when applying for a Canada Small Business Financing Program loan. It would help expedite the process if you arrived at the bank ready to provide all the information required within this form: Canada Business: This web site lists the various government services available for Canadian entrepreneurs. Business Development of Canada: BDC offers a variety of financing, consulting and venture capital options for Canadian businesses. Guide to Federal Incorporation: Thinking of incorporating your small business? This is a good place to start. Small Business Financing: The Canadian Bankers Association offers a helpful primer discussing various sources of funding and includes financing tips for small- and medium-sized businesses.