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What is an SBA Loan? & How Do SBA Loans Work?

What is an SBA Loan? & How Do SBA Loans Work?

Small businesses are the backbone of the economy, driving innovation, creating jobs, and contributing to local communities. However, such companies, especially when young, can be vulnerable and require funding.

As a small business owner in Canada, you may have come across the term “SBA loan” and wondered what it means and how it can benefit your business. In a nutshell, SBA loans are an American financial product. However, there’s a similar alternative in Canada that can help you whether you need to expand your business, purchase new equipment, or require some working capital.

In this in-depth guide, we will explore:

  • What is an SBA loan?
  • How Do SBA Loans Work?
  • What is the Canada Small Business Financing Program (CSBFP)?
  • SBA vs CSBFP
  • The benefits of small business loans like CSBFP.

What is an SBA loan?

The Small Business Administration (SBA) is a government agency established to support and promote the growth of small businesses in the United States.

One of the ways the SBA accomplishes this mission is by providing loans to small businesses through approved lenders, such as banks and credit unions. These loans are partially guaranteed by the SBA, which mitigates the risk for lenders and makes it easier for small businesses to secure financing.

Kinds of SBA loans available

The most common types of SBA loans include:

  • 7(a) loan program: This is the SBA’s primary loan program and provides funding for general business purposes, such as working capital, equipment purchases, and debt refinancing.
  • CDC/504 loan program: This program is designed to provide long-term financing for fixed assets, such as real estate and major equipment, with the goal of promoting economic development and job creation.
  • Microloan program: As the name suggests, this program offers small loans, typically up to $50,000, to help small businesses start and grow.

Can a Canadian Citizen get an SBA Loan?

Yes, but with caveats. It is possible for a Canadian citizen to get an SBA in the United States. However, the loan must be utilized for an American business and the Canadian citizen must be lawfully in the United States. As with the CSBFP, the ultimate decision for the SBA loan lies with the lender.

In this article

What is an SBA Loan in Canada?

As mentioned, the SBA loan doesn’t exist in Canada. It is an American lending product to help American small businesses. However, there is a similar option in Canada. It’s called the Canada Small Business Financing Program (CSBFP). Getting a small business loan like CSBFP can be very beneficial.

OK, so What is the CSBFP?

The Canada Small Business Financing Program (CSBFP) is a government initiative designed to provide financial assistance to small businesses in Canada. Established by the federal government, this program aims to support entrepreneurs by facilitating access to affordable financing options.

By partnering with various financial institutions, the CSBFP helps small businesses secure loans for the purchase of equipment, real estate, and other eligible assets. The CSBFP has been instrumental in fueling the growth of numerous small businesses across the country.

SBA Loan vs CSBFP

In a nutshell, both the SBA loan programs in the United States and the Canada Small Business Financing Program are designed to support local businesses. Businesses that meet the criteria and satisfy the application process to financing can gain access to financing.

Like the SBA, the CSBFP does not provide direct loans. Instead, it partners with banks and other financial institutions to offer loans to businesses that qualify. Both the SBA loan and the CSBFP are partly guaranteed by the government.

How do SBA Loans in Canada work?

To qualify for the CSBFP, your business must meet the criteria. For starters, your business must be a for-profit enterprise operating in Canada. It should have a gross annual revenue of $10 million or less, ensuring that the program caters specifically to small businesses. Additionally, your business should fall under one of the following categories:

  • Sole proprietorship
  • Partnership
  • Corporation.

Furthermore, your business must demonstrate that the loan being sought is required for the purchase or improvement of eligible assets. These assets include commercial vehicles, equipment, machinery, leasehold improvements, and property used for commercial purposes.

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