Federal financing for small businesses in Canada
The Canadian federal government funds a number of programs and agencies which provide or facilitate financing to small businesses in the form of grants (sometimes called "non-repayable contributions"), loans, loan guarantees, income support and subsidized hiring and/or training programs. The government also provides funding for no-cost or subsidized services to small businesses, which include workshops, business plan consulting, education, and federally-sponsored trade missions.
Financing and federally funded or subsidized services are available both to established businesses looking to grow or expand into new markets and to entrepreneurs seeking to launch a new business. Among other items, funds may be used for:
• Capital costs, including equipment, buildings, etc.
• Purchase of an existing business
• Start-up costs
• Hiring of employees
• Training of employees
• Marketing
• Trade missions/travel
• Living expenses for entrepreneurs starting a business
Funding may take the form of:
Grants Grants or "non-repayable contributions" are essentially that: funding which does not need to be paid back.
Loans Loans may be low- or no-interest contributions. Financing methods and repayment requirements vary from conventional loan arrangements to a situation in which the business would front the costs, submit the costs to the agency, receive reimbursement for all or a portion of the costs, and then at a pre-set date, start paying back the loan. Unlike most bank loans to small businesses, government loans may be unsecured.
Loan guarantees Under the Canadian Small Business Financing Act, the federal government may guarantee a financial institution's loan to a small business, up to 85 percent. If the borrower defaults on the loan, the bank is thus protected, and more apt to offer small business financing.
Income support Various programs provide income support to entrepreneurs for fixed periods, often up to a year, so that they are not required to work or seek work while starting their businesses.
Subsidies for hiring and training In order to increase employment and qualified workers, the federal government funds a number of programs which allow employers to hire and/or train youth, unemployed individuals, and others.
Facilities subsidies In some cases facilities rental and/or utilities may be subsidized.
Equity financing The government may invest in a small business, with the advantage of less stringent demands than those of venture capitalists or other private investors.
Tax refunds or tax credits Tax refunds and credits vary by industry and region.
Funding and supported services are administered by a variety of central, provincial, regional and local offices, including federal government departments, federal government agencies, non-profit corporations, financial institutions and chartered banks. Programs may be targeted by industry, region, or other criteria, such as programs for young entrepreneurs or Aboriginal entrepreneurs.
Prominent sources include:
Community Futures Development Corporations Funded by the federal government, these not-for-profit corporations provide business development loans, technical support, training and information for businesses in rural communities throughout Canada. They're run by volunteer boards of directors from local communities as well as salaried staff.
Western Economic Diversification Canada A department of the Government of Canada, Western Economic Diversification Canada sponsors loan programs – which are administered and delivered by financial institutions, including chartered banks, and not-for-profit organizations for businesses in British Columbia, Alberta, Saskatchewan and Manitoba.
Atlantic Canada Opportunities Agency This federal government agency provides financing in the form of loans, interest-free loans, non-repayable contributions and opportunities to attend trade missions for businesses in the Atlantic provinces.
Human Resources and Social Development Canada Through its own offices and third-party offices, this department of the federal government funds a variety of programs aimed at unemployed or underemployed individuals. These include hiring subsidies, entrepreneurial start-up funding (self-employment benefits), and training subsidies.
The Business Development Bank of Canada The Business Development Bank of Canada is a financial institution wholly owned by the government of Canada, which provides small and medium-sized businesses with flexible financing, low-cost consulting services and venture capital.
The Canada Small Business Financing Program This program encourages financial institutions to make their financing available to small businesses. Under the Program, a small business must apply for a loan at a financial institution (bank, credit union or caisse populaire) of its choice. If the loan is granted by the financial institution, the federal government will reimburse 85 percent of the lender's losses in the event of default.
Application requirements for federal grants and loans programs vary, but often include at minimum a completed business plan.