Financing for Established Businesses Guide

TABLE OF CONTENTS

1. Overview of Business Financing
2. Canada Small Business Financing (CSBF) Program
3. Business Development Bank of Canada (BDC)
4. Ontario Community Futures Development Corporations (CFDCs)
5. Community Small Business Investment Fund Program
6. Other Resources

1. Overview of Business Financing

When looking into applying for a loan for your business, it is important to study different avenues of financing. We have included a few brief definitions of various sources of financing.

Banks and Other Financial Institutions

The most common source of financing for small business is the chartered bank. Banks can provide a number of financing options, such as short-term loans, long-term mortgage loans and, in some cases, loans against inventory or accounts receivable. Other important sources of financing in this category include trust companies and credit unions.

Credit Cards and Personal Lines of Credit

For very small firms and home-based businesses, credit cards and lines of credit often provide a ready means of obtaining small scale debt capital. While convenient, they bear relatively high rates of interest and limit the amount of capital available.

Partners and Business Angels

Angels are simply wealthy individuals who invest directly in small firms owned by others. Angels tend to finance the early stages of the business. Attracting partners who make an investment in the business is also an option.

Venture Capitalists

Institutional venture capitalists are among the more important sources of risk capital. Venture capitalists are usually private or publicly-sponsored pools of capital that acquire a level of participation in the firm applying for financing. Venture capital can be an effective means of enabling the growth potential of the firm.

2. Canada Small Business Financing (CSBF) Program

The Canadian Small Business Financing Program, under the Canada Small Business Financing Act, can help businesses obtain term loans of up to $500,000 to help finance fixed assets, necessary for the operation of the business including:

• the purchase or improvement of real property or immovables
• the purchase of leasehold improvements or improvements to leased property; and
• the purchase or improvement of new or used equipment necessary for the operation of the business.

The loans are made directly by approved lenders to businesses (excluding farming) operating for profit. CSBF loans proceeds cannot be used to:

• improve a family dwelling for non-commercial purposes;
• purchase shares;
• finance working capital (finance inventory, accounts receivable, etc.);
• permits and licenses used in the operation of eligible assets;
• franchise fees;
• feasibility studies;
• professional fees (e.g. legal, accounting and appraisal);
• survey costs;
• building permits;
• vehicle for personal use;
• intangibles (i.e research and development costs, prepaid expenses, good will, etc,);
• or purchase real estate for resale.

For further information:
visit the website: Canadian Small Business Financing Program

3. Business Development Bank of Canada (BDC)

The BDC offers financial services with a variety of flexible terms and conditions, such as stepped principal payments, seasonal payments, and, in some cases, deferred principal repayment. Some of the BDC's financial services are outlined below.

The BDC's program, BDC Financing, can be used for a variety of commercially-viable projects, including expansion projects, plant overhauls, the purchase of existing businesses and the acquisition of fixed assets. In some cases, the loan may be used to reconstitute working capital depleted by capital expenditures or to finance sales growth.

Subordinate Financing

Subordinate financing provides the capital necessary for a business to fuel its growth or secure its continuity. Subordinate Financing is basically a hybrid of debt and equity financing.

For further information:
visit the website: BDC Subordinate Financing

Buy Equipment

If you are looking to modernize your business and production line, or to maintain growth with new equipment, the Business Development Bank of Canada's (BDC) financing and consulting solutions can help. In some cases, you can get up to 125% financing - 100% of the cost of new or used equipment with an additional 25% for related expenses such as installation and training.

BDC Venture Capital can be used to help finance a company's capital-intensive research and development cycle, to broaden a company's export market or to take a company public. BDC will consider capital investments at any stage of a company's life cycle from seed to growth, from acquisition or expansion to turnaround and will invest in both private and publicly listed companies.

For further information:
please call 1-877-232-2269
visit the website: BDC Venture Capital

4. Ontario Community Futures Development Corporations (CFDCs)

The Ontario Community Futures Development Corporations operate in selected communities in rural and Northern Ontario. Through federal support, CFDCs administer local investment funds to help finance existing small businesses for expansion or stabilization plans that help maintain or create jobs. Repayable financing of up to $150,000 on commercial terms through loans, loan guarantees or equity investments is available when financing from other sources is insufficient. All CFDC financing decisions are made at the community level by the local boards of directors. CFDCs also provide advice, information and referral service to local businesses and entrepreneurs.

For further information:
please call 1-866-668-2332
visit the website: Ontario Community Futures Development Corporations

5. Community Small Business Investment Fund Program

The Community Small Business Investment Fund Program provides Ontario small businesses with greater access to capital, by encouraging the formation of community sponsored venture capital pools, and by providing eligible investors with investment incentives for purchasing Class A shares of registered CSBIFs. Once registered and equipped with invested capital, a community fund is held to invest in eligible companies located within the sponsors' community sector. By doing this, Ontario CSBIFs provide for the Ontario small companies a complementary source of investment capital necessary to the economic growth and the creation of jobs.

For further information:
visit the website: Community Small Business Investment Fund Program

6. Other Resources

• Canadian Banker's Association
• Small and Medium-Sized Enterprises
• Your Guide to Small Business
• Sample Business Plans and Templates

Related Reading

• Financing for Starting a Business Guide
• Business Guides

Need more information?

Click: Canada Business
Call: The Business Info Line, a collaboration between ServiceOntario and Industry Canada, at 1-888-745-8888
Visit: Find a Community Partner Location near you

DISCLAIMERS

Information contained in this document is of a general nature only and is not intended to constitute advice for any specific situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

Some of the organizations listed above are not subject to the federal Official Languages Act or the French Language Services Act of Ontario. Their services may not be available in both official languages.