Small Business Financing: New Line of Credit

Summary#

This is a proposal to change the Canada Small Business Financing Regulations so small businesses can get new types of loans and more flexible credit. If adopted, the changes would allow about $520 million more lending a year, raise the equipment/leasehold cap from $350,000 to $500,000, and set rules for a new line-of-credit product. The notice appeared on April 2, 2022, and people were given 30 days to comment.

What it does#

• Creates a new line-of-credit product for working capital with a maximum authorized amount of $150,000 and an initial government coverage period of 5 years (with options to renew or convert).
• Expands the kinds of things the program can finance to include intangible assets and working capital costs.
• Raises the allowed maximums:
  • overall outstanding borrowing limit to $1,000,000 per borrower,
  • non-real-property portion (equipment, leasehold improvements, intangibles, working capital) to $500,000,
  • and within that, up to $150,000 may be used for intangible assets and working capital.
• Extends the government coverage period for non-real-property term loans from 10 years to 15 years.
• Keeps the term-loan maximum interest cap at prime + 3%, and sets the line-of-credit cap at prime + 5%.
• Applies the existing borrower fees to the new products: a one-time registration fee of 2% and an annual administration fee of 1.25% (calculated differently for lines of credit).
• Reduces some paperwork requirements for lines of credit: lenders can claim with a borrower attestation instead of full original receipts.
• Makes timing and administrative changes, for example extending loan registration windows from 3 months to 6 months, and increasing certain financing and appraisal timeframes from 180 days to 365 days.
• The regulations set these technical rules; earlier legislative changes (in Budget measures) had already widened who can borrow under the program.

Who's affected#

• Small businesses and start-ups across Canada, especially service- and technology-based firms that need working capital or funding for intangible assets.
• Not-for-profit and charitable social enterprises, which were recently made eligible and may use the new flexible financing.
• Lenders such as banks, credit unions and caisses populaires, because they will offer the new line-of-credit product under government-backed rules.
• Borrowers who use the program will pay the fees and interest (the government’s analysis estimates about 2,261 new borrowers per year and $520 million in new lending annually).
• It is unclear exactly which firms will choose these products; uptake depends on demand and lenders’ decisions.

Why it matters#

• It makes a long-standing loan program more modern. Small businesses that don’t have big physical assets—like many digital, service or young firms—will have clearer access to financing for daily operations and intangible investments.
• More flexible financing can help firms get through cash-flow problems and support recovery after shocks such as the COVID‑19 pandemic.
• The government’s analysis forecasts a net present benefit of about $286 million over the period studied and a benefit‑cost ratio of 1.46, meaning the estimated benefits outweigh costs in their model. Those are estimates and depend on assumptions about uptake and default rates.
• Borrowers should note the costs: registration 2%, annual administration 1.25%, and interest up to prime + 5% on lines of credit. These are real costs even as access improves.