title: "CSBFP equity injection: where your down payment can and cannot come from" description: "CSBFP requires the borrower to contribute equity to the project — typically 10–25% of the total eligible cost. But the rules about what counts as equity, and what doesn't, are not always obvious. A practical guide to acceptable equity sources: personal savings, shareholder loans, family gifts, RRSP withdrawals, proceeds from a property sale, and what lenders actually verify." date: "2026-05-26" author: "Capital Toolkit" tags: ["csbfp", "equity injection", "down payment", "application", "canadian financing", "small business", "funding"] videos:
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The CSBFP doesn't set a fixed equity injection percentage in its published rules. What the program requires is that the loan amount financed under CSBFP does not exceed the eligible cost — meaning the borrower must fund some portion of the total project from sources other than the CSBFP loan.
In practice, lenders apply an equity injection expectation of roughly 10–25% of the total eligible project cost, calibrated to the borrower's credit profile and the project risk. A strong borrower with a clean credit history and a well-supported file may qualify with 10–15%. A new business with thin credit history or an optimistic projection may be asked for 20–30%.
But the question of how much equity is only part of the analysis. The question of where the equity comes from matters as much to the lender as the amount.
What counts as eligible equity
1. Personal savings (most straightforward)
Cash already sitting in a personal bank account — savings, chequing, investments — is the cleanest equity source. The lender verifies it with a bank statement showing the balance. The statement should be recent (within 30 days of application submission) and should show that the funds are available (no pending holds or overdrafts).
For a sole proprietor or partnership, personal savings and business savings are often commingled — this is fine, but the lender may ask for both personal and business statements to document the available equity pool.
2. Retained earnings or business cash reserves (existing businesses)
An existing business with accumulated cash in its operating account can use that cash as equity injection. The lender verifies this with business bank statements. This is often the primary equity source for a growing business financing a second location, an equipment upgrade, or a building purchase.
3. Shareholder loans (often accepted, with conditions)
A shareholder (you, a co-owner, or an investor) can loan money to the corporation, which the corporation then contributes as equity to the project. This is a common structure for small businesses that are held through a corporation.
What lenders typically require:
- A signed shareholder loan agreement between the corporation and the shareholder (confirming the loan amount, interest rate if any, and repayment terms)
- Bank statements showing the funds being transferred from the shareholder's personal account to the corporation's account
- Some lenders require a subordination agreement — the shareholder agrees that their shareholder loan will not be repaid until the CSBFP loan is satisfied
Important: The shareholder loan itself should not be borrowed money (e.g., a personal line of credit drawn to fund the equity injection). If you're drawing a personal HELOC or line of credit to fund the corporate equity contribution, the lender may view this as leveraged equity rather than true equity injection, which reduces their comfort with the overall capital structure.
4. Family gifts (accepted with documentation)
A gift from a family member — a parent, sibling, or other family member — can qualify as equity provided it is documented as a gift (not a loan that must be repaid). Lenders require:
- A signed gift letter from the donor confirming: (a) the amount, (b) that it is a gift and not a loan, (c) that no repayment is expected, and (d) the relationship to the recipient
- A bank statement from the donor showing the funds in their account before the transfer
- A bank statement from the recipient showing the funds received
If the gift letter says "gift" but the donor expects repayment — in any form, on any timeline — it is not a gift for underwriting purposes. Lenders sometimes verify gift claims through follow-up conversations.
5. RRSP or TFSA withdrawal
Money withdrawn from an RRSP or TFSA and deposited into a bank account becomes personal savings. The withdrawal itself is documented with a bank statement showing the deposit. Note that RRSP withdrawals are taxable income in the year of withdrawal — this is a tax consequence, not a disqualifying factor for CSBFP, but it affects the borrower's personal tax picture. Consult your CPA before withdrawing from an RRSP to fund a business equity injection.
6. Proceeds from an asset sale
If you sell a personal asset — a vehicle, investment property, other investment — the proceeds can fund the equity injection. Document with:
- The sale agreement or bill of sale for the asset
- Bank statements showing the proceeds received
7. Prior capital expenditures already paid (the 365-day rule)
CSBFP allows assets acquired up to 365 days before the loan registration date to be financed under the program. If you paid cash for eligible equipment or leasehold improvements before your CSBFP application, that prior spending can count toward the equity injection — provided it was paid from legitimate business or personal funds, not from a related party transaction.
Specifically: if you paid $30,000 cash for equipment three months ago, and you are now applying for a CSBFP loan that includes that equipment in the eligible cost list, the $30,000 you already paid can typically be counted as equity already contributed. Lenders verify this with invoices and bank statements showing the payment.
What does not typically count as equity
Borrowed funds at the same level of priority
If the equity injection itself is funded by another loan — a personal line of credit, a credit card cash advance, or a second business loan — the lender may refuse to accept it as equity. The issue is that the borrower has now stacked debt: they owe both the CSBFP loan and the equity-funding loan. The equity injection is supposed to represent the borrower's economic exposure to the project, not additional leverage.
This is not an absolute rule — some lenders accept HELOC-funded equity contributions — but it is a common area of scrutiny. If your equity is coming from borrowed sources, disclose this to the lender early rather than having it discovered during the review.
Related-party asset purchases presented as equity
If a related party (a family member, another corporation you control, a business partner) sells you an asset at above-market value or contributes a fictitious asset as "equity," this is not acceptable. CSBFP fraud provisions are taken seriously; the program's eligible cost rules require arm's-length pricing on related-party transactions.
Future revenue or projected profits
"We expect to generate $50,000 in revenue next quarter" is not an equity contribution. The equity must be demonstrably available at the time of application, not projected to become available.
How much equity do you actually need?
Work backwards from the DSCR:
DSCR = Projected EBITDA ÷ Annual Debt Service ≥ 1.25x
If your EBITDA projection is fixed (it's based on your capacity analysis), then you need annual debt service ≤ EBITDA ÷ 1.25. The loan amount that generates that debt service (at 7.95% over your chosen amortization) defines the maximum CSBFP loan. The rest of the project cost must come from equity.
Example: Projected Year 2 EBITDA: $120,000. To achieve DSCR of 1.25x: Annual Debt Service ≤ $120,000 ÷ 1.25 = $96,000. At 7.95% over 8 years, a $96,000 annual payment corresponds to a loan of approximately $520,000. If your total project cost is $600,000, you need $80,000 in equity (13.3%).
If you cannot source $80,000 in acceptable equity, you either increase the amortization (reduces the required debt service payment, increases the eligible loan amount) or reduce the project scope.
Presenting equity at submission
The equity documentation should be included in the initial file submission — not provided as a follow-up. A file that arrives with a letter saying "equity funds will be available at closing" without a supporting bank statement delays the credit review. The lender needs to see:
- The equity source clearly identified (personal savings, shareholder loan, family gift, etc.)
- The funds demonstrably available (bank statement with sufficient balance)
- Any required supporting documentation for that source (gift letter, shareholder loan agreement)
Presenting this clearly at submission compresses the credit review timeline.
For the full documentation package, see the CSBFP document checklist. For the DSCR calculation and how to structure the deal, see CSBFP DSCR: how lenders calculate debt service coverage.
Written by Capital Toolkit