Government Grants & Loans: Funding Program Types
Depending on the size & nature of your business you may be eligible for anywhere between $1500 to 10 million dollars in the form of:
Grants and Subsidies (one-time
& renewable): When you receive this money, you don't have to pay it back. It's yours to use under the terms of the grant. The federal and provincial governments know that it's tough for small businesses like yours to bring new products to market, make your company more efficient, or hire employees. So they provide billions of dollars a year to aid Canadian product innovation and grow small businesses.
For example, the National Research Council Industrial Research Assistance Program (NRC/IRAP) provides non-repayable contributions (a fancy name for grants) to small and medium-sized Canadian businesses who are interested in growing by using technology to commercialize services, products and processes in Canadian and international markets.
Bruce Elliott, a self confessed "idea man" from the Northwest Territories, developed his concept for fibreglass telephone poles with help from IRAP. The program funded the salary of a senior engineer and provided grants to help assemble fabrication equipment to test new production methods.
The federal and provincial governments also recognize that some regions and business sectors need more economic development support than others. Businesses across the country are eligible for some of the billions of dollars in funding allotted for this development.
Small businesses accessing grant programs enjoy a bonus benefit: once you've successfully received funding, you're more likely to get additional grants from the same agency because you meet their program requirements.
There are currently
39 Federal and 57 Provincial programs available, offering between $1,500 - $500,000
worth of funding.
Low-interest or no-interest loans:
While a grant is obviously an ideal source of government funding, you have an even greater chance of accessing government programs which provide financing for small businesses through loans. So if you've made the rounds of the banks and been shown the door, don't give up yet.
In fact, government loans are often better than bank loans. They may be interest-free, or may offer highly competitive rates. (In some cases, your loan may even be considered "non-repayable", which is another way the government says "grant".) Government loans carry additional advantages. They're more likely to be unsecured; that is, you don't need to put up collateral against the loan.
You'll find loans under a variety of programs, directed at different industries, different geographical regions, and even loans directed specifically at women and young entrepreneurs.
For example, the federal Canadian Youth Business Foundation (CYBF) offers start-up loans of up to $15,000, amortized over three to five years, to young people starting a business. Young, in CYBF parlance, means anywhere from 18 to 34 years old. You'll need to complete a viable business plan as part of the program, but that should be top of your to-do list anyway. The program often matches you with an experienced business person who can mentor you during (and after) the start-up phase.
Evan and Erin McAskile were turned down by every bank they went to while trying to open a country inn. But at 27 and 28, they were eligible for a CYBF loan, and the couple received $15,000. Since the loan was unsecured, they were able to leverage it into additional loans totalling $75,000 – some of it from the very banks who had previously turned them down.
Programs such as this form the bulk of government funding for small business. It's in your interest to seek and find those for which you're eligible.
There are currently 83 Federal and 82 Provincial low or no-interest loan programs available, offering between $1,500 - $10 million worth of funding.
Tax refunds or tax credits:
Getting money is obviously beneficial. But not having to pay it amounts to the same thing, and can even be better. The government offers a variety of programs that decrease your tax burden, including programs that provide a lower tax rate for small businesses, award tax credits for hiring eligible apprentices, and provide investment tax credits (ITCs) for qualified expenditures in R&D.
For example, the Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive program to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada that will lead to new, improved, or technologically advanced products or processes.
Consider the advantages for those projects that qualify. Canadian-controlled private corporations can earn an ITC of 35 percent up to the first $2 million of qualified expenditures for SR&ED carried out in Canada, and 20 percent on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20 percent of qualified expenditures for SR&ED carried out in Canada.
Since it's a refundable tax credit, you get the refund in cash, even if you don't make a profit. And beyond that, you receive a full tax deduction in the year you incur the expenses – even if they're capital expenses. You can also carry over R&D deductions to subsequent years.
And what if your project's a dud? Even if the R&D is ultimately unsuccessful, you have still earned the credits.
Finally, if the project is something you are going to do anyway, filing for your tax claim is a no-brainer… it's free money back!
There are currently 11 Federal and 23 Provincial programs available,
offering between $3,500 - 2 million worth of funding.
Government insurance against
business risks: For low or even no premiums, you can have the government insure your business against various risks, providing valuable assurances to financial institutions and making it easier for you to borrow.
For example, Export Development Canada (EDC) will insure your accounts receivable, covering your full book of business for up to 90 percent of your losses against such risks as customers refusing to pay. Your insurance might also cover refusal to accept the goods, bankruptcy or insolvency, cancellation of import or export permits, currency transfer, contract cancellation, and wars or insurrections.
Mark Alan, who exports erosion control blankets to the U.S. swears by the program. "It gives me the comfort that I'll get at least 90 percent of the money I invoice," he says. "And it gives the bank some kind of security in terms of my receivables in the U.S. so they will lend more against those receivables."
There are currently 7 Federal and 8 Provincial programs available,
offering between $20,000 - 10 million worth of funding.
Government Relocation Incentives:
If you're willing (or eager) to move to a new facility or even a new province, you may find incentives that make the move that much more attractive.
For example the government of Nova Scotia offers a substantial payroll rebate to eligible companies expanding in or relocating to the province. Companies must create a specified number of jobs at a determined salary within a set timeframe. For a relocating company, that can be easily predicted.
There are currently 7 Federal and 6 Provincial programs
available, offering between $5,000 - $500,000 worth of funding.
Government guaranteed loans:
One of the reasons banks shy away from financing small businesses is the high risk factor. Many small businesses fail, and when that happens, the bank is stuck with a bad loan. But if someone is willing to guarantee the loan, or a substantial part of it, financial institutions are a lot more willing to pony up. It's like having Dad co-sign for that car loan.
Government insurance (available for low premiums or even no premiums) provides this option to small businesses. For example, the Canadian Small Business Funding Program (CSBFP) can help you get a loan of up to $250,000 to buy or improve real property or equipment, or to make leasehold improvements. Your loan will finance up to 90 percent of these costs.
Interest rates on CSBF loans are either floating or fixed, but the floating rate can't be more than three percent higher than the lender's prime rate, and fixed rates can't be more than three percent higher than the lender's residential mortgage rate. You will pay a fee of two percent of the total amount of the loan, but this, too, can be financed and added to the total – as long as it doesn't exceed the maximum of $250,000.
CSBF loans of various amounts help small businesses across the country. When cash flow got tight due to the seasonal nature of his outfitter business, Gary Jaeb of True North Safaris in the Northwest Territories received $24,000 to maintain and modernize his fleet of small fishing boats.
Private investigator Dick Lee of British Columbia's Kootenays took over the company he worked for when his boss retired, and brought the company up to date with new computer equipment, thanks to financing of $38,285 under the program.
And entrepreneurs Danny Guillaume and Jeff Grajczyk revamped a Moose Jaw, Saskatchewan tourist attraction with a $224,000 government-backed loan from the Royal Bank.
Guaranteed government purchases
of your product or service: With a firm commitment from the government, you can count on predictable cash flow. This increases your chances of financing from banks and/or investors, and lends your business a preferred supplier status, which will build confidence in your other customers.
Government Information &
Services: In addition to money, the government provides a number of programs which offer valuable services and resources. These might include training programs, consulting services, mentorship programs, the opportunity to attend trade fairs, and introductions to potential suppliers, partners and customers. In many cases, these services would normally bear a substantial cost, so you're not only getting the business building value of the service, but you're saving money, too.
Conditionally Repayable Contribution:
Often, when the government invests in your business, the program has a built-in protection for you. In this case, you might be required to pay back the amount only if the venture proves successful. It's like having a really nice venture capitalist invest in your company, but only wanting a return on the investment if your project is successful and profitable.
Grants in-lieu of Property Taxes:
In many areas the government offers a break on property taxes to encourage investment. It is like getting the money as a grant since you would have had to pay it back otherwise.
Equity Financing: In this case, the government invests in your company, much as a venture capitalist or angel might. The difference is, the government is often more interested in economic stimulus and less anxious about the return on the investment – so there's less pressure on you to deliver profits to them.
Access to Resources:
Sometimes, the equipment and facilities you need to develop or research a product are beyond your business' capabilities. Through the government you may gain access to state-of-the-art expertise, resources and facilities.
The SBFC has research staff with expertise in the government funding opportunities of every province and region of Canada. Our databases are arranged to be easily referenced both by area and business type. If any government office offers funding for your type of venture, we have it listed and referenced so you can access it easily. There is money available now for qualified new and existing small businesses.
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