Financing a Business Purchase With a CSBFP Loan in Ontario

If you are buying a business and need a bank loan, you may hear about the Canada Small Business Financing Program, often called CSBFP. How it applies to your purchase depends on the lender and the program documents, so it is worth asking the lender early.

This article explains how a loan like this fits into an Ontario business purchase and what your lawyer typically handles. The exact loan amounts, rates, fees and security terms are set by the program rules and your lender, so confirm them directly with the lender and your lawyer before you rely on them.

How the program fits into a purchase

How the program applies to your purchase depends on the lender and the program documents, so it is worth asking the lender directly and confirming the details with a lawyer. The federal program is a backdrop to that decision, but it does not replace the lender's review of you, the business and the deal.

The timing of the loan approval, the purchase agreement and the closing should all line up, so tell your lawyer about the loan early. A sensible first step is to ask the lender for a written list of what it needs and which of the purchase costs it will finance.

What lenders usually want to see

Every lender has its own checklist, but these items are common in a business purchase loan application:

• A business plan and projections for the business you are buying.
• Financial statements and tax filings for the business and information about your own finances.
• The proposed purchase agreement, or a letter of intent.
• Details of the assets being bought and how the price is allocated.
• The lease for the premises, if there is one, and the landlord's consent if the lease must be assigned.

Security requirements vary by lender and by the loan. Ask what the lender will take as security and whether it will require personal guarantees from you or anyone else, and have your lawyer review those documents before you sign.

Searches and title: what the lawyer checks

A lender that takes security over business assets wants to know nobody else has a prior claim. Ontario's Personal Property Security Registration is a public database of registrations under the Personal Property Security Act and the Repair and Storage Liens Act. Enquiries can be run against an individual debtor, a business debtor or a motor vehicle, one transaction at a time, and it does not cover real property.

This matters because a buyer of goods from a seller who sells in the ordinary course of business takes them free of the seller's security interest, but a purchase of a business's assets outside the ordinary course does not get that protection, which is why a search and lien discharges matter. An unperfected security interest in goods, chattel paper, documents of title or instruments is not effective against a transferee who gives value and receives delivery without knowledge of it, but that is not something to rely on in place of a search. How this applies to other kinds of business assets depends on your situation, so it is worth confirming with a lawyer.

Your lawyer can also check basic information about a business in the Ontario Business Registry, which anyone can search for free; ministry search products cost $8 for a profile report, $3 for document copies and $26 for a certificate of status, and intermediaries may charge extra service fees.

Tax and payroll items that affect the closing

A lender wants the purchase to close cleanly, and several tax and payroll steps feed into that. In an asset purchase, the WSIB says a buyer should get a purchase certificate; it must be requested before the date of sale and is valid for 30 days from its issue date. The WSIB issues one only if the seller's account is in good standing.

For GST/HST, a buyer who acquires all or substantially all of the property needed to carry on the business can jointly elect with the seller on Form GST44 so that no GST/HST is payable on the sale, as long as the buyer can continue operating the business with the property acquired. The election cannot be used if the seller is a GST/HST registrant and the buyer is not, and even with the election GST/HST still applies to services the seller supplies, to property supplied by lease, licence or similar arrangement, and, if the buyer is not a registrant, to a taxable sale of real property. In an asset purchase, the buyer may also need a new business number and its own payroll and GST/HST accounts. If you plan to keep the seller's employees, their time with the seller generally counts toward their length of employment under the Employment Standards Act, 2000.

What to do next

• Speak to your lender early and ask for a written list of its requirements, loan terms and security.
• Tell your lawyer about the loan as soon as you have a purchase agreement in view, so the closing dates line up.
• Ask your lawyer to run the Personal Property Security Registration searches and arrange discharges of any prior claims.
• Request the WSIB purchase certificate before the sale date if you are buying assets.
• Confirm with your accountant whether a GST44 election is available and who files it.
• Review any guarantee or security document with your lawyer before signing.

For program details such as eligibility, amounts and costs, rely on the lender and the program's own materials, and ask your lawyer to explain how those terms interact with your purchase agreement.

Frequently asked questions