New line of credit for small businesses

Summary#

These final rules, titled Regulations Amending the Canada Small Business Financing Regulations, were published in the Canada Gazette on July 6, 2022. They add a new line-of-credit option and broaden the program so small businesses can borrow for intangible assets and working capital, while increasing some loan size and term limits.

What it does#

• Expands what can be financed under the Canada Small Business Financing Regulations:
  • Adds intangible assets (things like software, licences, IP) and working capital costs (day-to-day operating expenses).
  • Creates a new revolving line of credit product for working capital.
• Sets maximum amounts and sub-limits:
  • Term loans: up to $1,000,000 total.
  • Within that, up to $500,000 can be for equipment and leasehold improvements.
  • Of that $500,000, up to $150,000 can be used for intangible assets and working capital.
  • Lines of credit: up to $150,000.
• Changes to loan terms and coverage:
  • Non-real-property term loans (equipment, leasehold improvements, intangible, working capital) can have government coverage for up to 15 years.
  • Lines of credit have a government coverage period of 5 years; before the end of that period lenders and borrowers may:
    • renew the line for another 5 years (with another registration fee),
    • convert it to a term loan (with up to 10 years government coverage), or
    • repay it with conventional financing (without government coverage).
• Interest and fees:
  • Line-of-credit maximum interest rate: prime + 5%.
  • Term-loan maximum interest rate remains prime + 3%.
  • Registration fee remains 2% of the loan/authorized amount; applies to lines of credit, renewals and increases.
  • Annual administration fee remains 1.25%, paid quarterly (calculated on month-end balances for term loans and daily balances for lines of credit).
• Security, documentation and rules:
  • Lenders must take security in business assets for many of the new loan types.
  • For lines of credit, lenders will rely on a borrower-signed attestation (instead of submitting cost/proof documents) that the credit is used for working capital and that those costs were incurred within 365 days of authorization.
  • Deadlines and timeframes adjusted: loan registration extended to 6 months, the financing window for expenditures and appraisal timeframes extended to 365 days, and certain documentation requirements relaxed (e.g., proof of payment threshold reduced to 75% for some claims).
• Loss-sharing and administrative changes:
  • The government continues to cover 85% of eligible losses on defaulted registered loans; lenders remain responsible for the remaining 15%.
  • Other technical, housekeeping and administrative updates to align with the new products and limits.

Who's affected#

• Primary:
  • Small businesses across Canada — especially service, technology, and start-up firms that need working capital or intangible-asset financing.
  • Lenders (banks, credit unions, caisses populaires) that participate in the Canada Small Business Financing Program.
• Also affected:
  • Not-for-profit and charitable social enterprises (these groups became eligible under recent legislative changes and can use the expanded loan types).
  • Borrowers and lenders will see changes in fees, documentation and loan structures.
• If unclear:
  • The rules describe program-wide changes; exact effects for any single business depend on the lender’s policies and whether that lender chooses to offer the new line-of-credit product.

Why it matters#

• More flexible financing: businesses that previously could not use the program for software, licences, subscription-based assets or day-to-day cash needs now can. That can help start-ups, digital firms and service businesses get funding better tailored to their needs.
• Faster or larger projects: higher sub-limits (for example increasing equipment and leasehold-improvement capacity to $500,000) and longer coverage (15 years) can make some investments more affordable.
• New short-term liquidity option: a government-backed line of credit (max $150,000) gives small businesses a formal, lower-cost option for working capital — though the line’s interest cap (prime + 5%) is higher than term loans.
• Costs and trade-offs: borrowers still pay a 2% registration fee and an annual 1.25% administration fee, plus interest; lenders and the government share loss risk (15% lenders / 85% government). The government assessed that the changes could support about $520 million in new lending per year and produced an estimated net present benefit of $286 million (government analysis and modelling).
• Implementation notes: the regulations come into force in line with the implementation of related legislative provisions (the rules tie their start date to the coming-into-force of section 205 of the Budget Implementation Act, 2021, No. 1 or to the registration date if that occurs later).