What are BDC Small Business Loans and How Do They Work?

With a variety of specialized and purpose-driven loan options for small businesses, as well as advisory and consulting services for businesses in all stages of growth, the Business Development Bank of Canada (BDC) is a popular resource for Canadian businesses.

Between BDC loans, other traditional loans like bank loans and Canada Small Business Financing Program loans, and alternative lending options like merchant cash advances, small business owners in Canada have a variety of funding options at their disposal. But when you’re busy managing your business and making sure day-to-day operations are going smoothly, it can be hard to carve out the time to determine which funding option is best for your business—not to mention the time it will take to collect the required documentation and put your application together.

In this post, we’ll take a closer look at BDC loans to help you determine whether these loans are right for your small business, including:

• What is the Business Development Bank of Canada?
• Types of BDC business loans
• What are BDC small business loans?
• BDC loan requirements
• BDC loan rates and fees
• How to apply for a BDC business loan

If you’re curious about other small business loan options, you can compare Canada Small Business Financing Loans to alternative lenders.

Let’s get started.

Founded in 1944, the Business Development Bank of Canada (BDC) is a crown corporation that functions similarly to a traditional bank. Unlike traditional banks, however, the BDC’s principal shareholder is the Government of Canada. With less focus on generating profit for public shareholders, the BDC can concentrate more on providing financial and consulting services to businesses. Today, there are over 118 BDC business centres across Canada helping to connect small- and medium-sized business owners in all industries and at all stages of growth with capital, consulting and advisory services, and more.

The BDC is also a certified B Corporation, which are “recognized as a force for good, meeting high standards of social and environmental performance, accountability, and transparency”. With a focus on championing companies that are dedicated to creating local prosperity, strong communities, and a sustainable environment, the BDC is the first financial institution in Canada to achieve this certification, and is the B Corp movement’s National Partner in Canada.

The BDC offers several types of financing to small businesses, including small business loans, start-up financing, and more. Each type of BDC business loan works differently, with different qualification requirements, terms, and ideal uses.

We will elaborate more on BDC small business loans later in this post, but before we dig in, here is a quick overview of some of the BDC’s other popular funding options:

• Start-up Financing: For businesses with a history of at least 12 months of revenue. Can be used to buy assets, pay start-up fees, buy a franchise, create a website, hire an advisor, or as working capital. Businesses in operation for less than 12 months may be able to access funding through other BDC partners.
• Commercial Real Estate Financing: Up to 100% financing with terms up to 25 years and principal payments postponed for up to 36 months. Can be used to buy land or buildings, pay for construction of a new facility, expand or renovate existing premises, or replenish working capital depleted by real estate costs.
• Purchase Order Financing: Up to 90% financing with terms up to 18 months. Purchase order financing allows you to fulfill large orders and take on new business opportunities by accepting larger contracts and purchasing required inventory, expanding to new markets, or paying suppliers up front.
• Equipment Purchase Funding: Up to 125% financing to cover purchase costs and related expenses, with terms up to 12 years and principal payments postponed up to 24 months. Equipment purchase financing allows businesses to increase capacity by investing in new machinery or equipment, improve efficiency by using updated equipment to modernize operations, or complement line of credit funds if working capital is depleted by equipment costs.
• Business Purchase or Transfer Financing: Secure funding for a business acquisition, management buyout, family succession, or vendor take-back. You can also use this funding to acquire the land or assets of another business.
• Working Capital Funding: With terms up to 6 years and principal payments postponed up to 12 months. Use working capital funding to make investments without risking cash flow stability, complement a line of credit, launch new growth projects, or improve profitability.
• Supply Chain Support Loans: Businesses that are negatively impacted by supply chain delays and disruptions may be eligible for up to $500,000 in financing with principal payments postponed up to 12 months.
• Technology Financing: Up to 100% financing with terms up to 4 years and principal payments postponed up to 6 months. Technology financing is available to all companies, not just technology-based businesses, and can be used to purchase hardware or software, invest in new digital marketing strategies, or hire an expert to help with IT planning or online sales.
• Financing for Technology Businesses: Designed for earlier-stage scale-up or established tech businesses, this form of BDC funding can be used to develop new products, hire staff, invest in marketing, acquire another business, or expand to new markets.

The BDC also offers special financing programs for women entrepreneurs, Indigenous entrepreneurs, and Black entrepreneurs.

Now that we’ve covered the different types of BDC loans that are available to small- and medium-sized businesses in Canada, let’s take a closer look at BDC small business loans in particular.

BDC small business loans are traditional term loans with a maximum loan amount of $100,000.

BDC small business loans are repaid over 60 months. Principal payments are postponed for the first six months, which means you’ll only pay interest for this period of time. Starting on the 7th month, the principal of the loan will be repaid in 60 monthly payments. Unlike some traditional bank loans, there are no penalties for early or lump-sum payments on BDC loans.

A personal guarantee is required, but personal assets are not accepted as collateral for BDC small business loans.

To be eligible for BDC business loan, your business must:

• Be a Canadian business
• Be in operation and generating revenue for at least 24 months (if you’re business is in operation for less than 24 months, look at the BDC’s start-up financing options)
• Demonstrate a good credit history

Business owners must also be over the age of majority in the province or territory where they live.

You’ll need the following information about your business in order to apply:

• Complete, up-to-date business information as listed in your business registry
• Names, email addresses, home addresses, and phone numbers for your company’s president, board of directors, and shareholders. The company president, as well as all members of the board of directors and all shareholders, will have to create a Client Space account in order for the BDC to review and process your application
• Business cheque specimen

You’ll also be required to provide one piece of personal identification.

Documentation requirements for BDC business loans are more extensive than alternative lenders, but less exhaustive than Canada Small Business Financing Loans and bank loans. Before you apply, be prepared with the following documentation:

• A comprehensive business plan to show that your project is well-researched and low risk, using statistics and data to support your plan. Follow the BDC’s business plan template for the best results.
• Financial projections for the next two years, including cash flow and outlays, total income, and balance sheets.
• Investment and collateral to show that you’re making a financial contribution to the project, demonstrate your commitment, reduce the bank’s risk, and prove that you have the capacity to reinvest in the future if necessary.
• Credit history to demonstrate how you’ve handled past debt. Treatment of past debt is a clear indication of how you’ll handle future debt, and showing the BDC that you have an understanding of your past debt obligations will strengthen your application.
• Clear objectives and a firm idea of what funding you want and what you’re willing to accept, including the loan amount, expected rates, proposed repayment schedule, and when you need the funds.
• Other offers—consider all your funding options before applying.

BDC loan rates vary by client, but always use the following formula:

Current floating base rate + variance based on your personal and business information = BDC loan interest rate

BDC loan rates are based on prime interest rates, which are set by individual financial institutions based on the rate set by the Bank of Canada. Because BDC loan rates are based on the prime rate, businesses with BDC business loans may see their interest rates change during the course of their repayment if the Bank of Canada increases or decreases the prime rate. However, the additional variance added by the BDC, referred to as “spread-to-prime”, typically does not change over the term of the loan unless there is a change in risk for the business.

Before issuing a loan and determining your interest rate, the BDC will review your business’s history of profitability, how much profit you’re currently generating, whether your profits are trending higher or lower, and your existing debt. More profitable businesses will present less risk to the BDC, which means they will receive lower rates. Offering collateral to secure the loan may also reduce your BDC loan rates.

There are no fees to apply for a BDC small business loan, but if your application is approved and you accept the loan offer, standard BDC administration fees and an annual loan management fee of $150 will apply. If amendments are required, a $150 fee per amendment will also apply.

Business owners can apply for a BDC small business loan online through Client Space, the BDC’s online platform for processing loan applications, tracking application progress, and managing issued loans.

BDC loans may be easier to acquire than other traditional funding options in Canada, such as Canada Small Business Financing Loans and bank loans. Many specialized BDC business loans are available depending on your business’s age and your goals.

If you need fast funding, alternative lenders like Greenbox Capital® offer a streamlined online application and can deposit funding in as little as 24 hours. Multiple types of funding are available depending on your business’s goals and needs, including merchant cash advances, invoice factoring, alternative business loans, lines of credit, and more. No collateral is required, making alternative lenders an ideal option for businesses that need smaller loan amounts, can’t offer collateral, have lower credit scores, or need fast funding.