title: "What CSBFP cannot finance: excluded costs and common misconceptions" description: "The Canada Small Business Financing Program has a defined list of eligible costs — and an equally important list of excluded ones. Inventory, goodwill above the sub-limit, working capital, existing debt refinancing, shares, and deposits are not eligible. Understanding what falls outside CSBFP's scope prevents surprises during the application and ensures you structure the project budget correctly." date: "2026-05-26" author: "Capital Toolkit" tags: ["csbfp", "ineligible costs", "excluded costs", "eligible costs", "canadian financing", "small business"] videos:
- what-can-you-finance
- understanding-the-csbfp
- loan-preparation
The Canada Small Business Financing Program covers four categories of eligible costs: equipment, leasehold improvements, real property (land and buildings), and intangibles (including goodwill, intellectual property, and software). Within those categories, there are meaningful exclusions — costs that look like they should qualify but don't. Getting this wrong before the application creates problems during the lender's cost review and disbursement process.
What CSBFP cannot finance
1. Inventory
CSBFP does not finance inventory — the goods, raw materials, or stock a business holds for sale. This is one of the most common misconceptions.
Why: CSBFP is a capital asset program. Inventory is a working capital item, not a capital asset. It turns over regularly and has no lasting collateral value. The program is specifically designed for assets that provide ongoing productive capacity to the business.
What to use instead: Inventory financing (revolving line of credit, demand facilities, asset-based lending against receivables and inventory) is handled through conventional working capital products. CSBFP's revolving line of credit product (separate from the term loan, up to $150,000) can be used for general working capital — which might temporarily support inventory needs — but it is not an inventory-specific product.
Common scenario: A retail business buying $80,000 of opening merchandise. This cannot be included in a CSBFP loan, even if the business is also financing store fixtures and leasehold improvements under CSBFP.
2. Working capital (general)
General working capital — cash to fund operations, payroll, accounts payable, and overhead during the ramp-up period — is not eligible for CSBFP term loan financing.
Exception: The CSBFP revolving line of credit (introduced in 2022) is available for working capital purposes, separate from the term loan, up to $150,000. Not all lenders offer this product.
Common scenario: A startup business wants $50,000 "to cover the first 6 months of operations." The CSBFP term loan cannot be used for this. The CSBFP line of credit (if the lender offers it) can help; a conventional operating line of credit or personal savings injection is the typical source.
3. Refinancing of existing debt
CSBFP cannot be used to pay off, replace, or refinance existing business debt — whether from a bank, a private lender, a shareholder loan, or a previous CSBFP loan.
Why: The program requires the loan proceeds to be applied to a defined capital project — new eligible assets. Using CSBFP to retire existing debt does not create new productive capacity for the business; it is a balance sheet restructuring, not an investment.
Important note on shareholder loans: If a shareholder has previously advanced money to the business to fund equipment or leasehold purchases, the business may want to repay the shareholder loan from CSBFP proceeds. This is not permitted — the CSBFP funds must flow to vendors and contractors for new eligible costs, not to repay related-party debt. However, the 365-day lookback provision allows some pre-paid costs to be incorporated if the original purchases were eligible and within the lookback window.
4. Goodwill above the intangibles sub-limit
Goodwill (the value of a business above its tangible asset value — customer relationships, brand, reputation, assembled workforce) is eligible under CSBFP's intangibles sub-limit, which is capped at $150,000. Goodwill above $150,000 cannot be financed through CSBFP.
Common scenario: A business acquisition where the purchase price is $800,000, with tangible assets worth $400,000 and goodwill of $400,000. CSBFP can cover:
- Equipment: $300,000 (non-RP sub-limit)
- Leaseholds: $100,000 (non-RP sub-limit)
- Goodwill: $150,000 (intangibles sub-limit)
- Total CSBFP: $550,000
The remaining $250,000 in goodwill above the sub-limit, plus any purchase price above the CSBFP totals, must be financed conventionally.
5. Shares, equity, or business interests
CSBFP cannot finance the purchase of shares in a corporation, equity interests, or business ownership stakes. This applies even in acquisition scenarios where the borrower wants to structure the transaction as a share purchase.
CSBFP applies to asset transactions, not share transactions. When a business is acquired via share purchase, there are no "eligible assets" being transferred to the borrower — the borrower is purchasing the equity of the company, which is not a CSBFP-eligible asset.
Structuring workaround: Some acquisitions are re-structured as asset purchases specifically to access CSBFP financing. The buyer purchases specific assets (equipment, leaseholds, intellectual property) rather than the shares of the company. This changes the legal structure of the transaction but makes the assets eligible for CSBFP. A tax and legal advisor should be involved in any acquisition re-structuring.
6. Real estate without business occupancy
CSBFP's real property category covers land and buildings that the borrower's own business occupies and uses for its operations. Investment real estate — properties purchased for rental income to third parties — is not eligible.
Why: The program requires that the real property be used in the borrower's business. A landlord purchasing commercial real estate to rent to tenants is a real estate business, not a small business using the property for productive operations. The tenant, however, may be able to use CSBFP for their leasehold improvements in the same space.
Owner-occupied requirement: The borrower must be the occupant of the property — using it to operate their own business. A dentist purchasing the building their dental office occupies: eligible. The same dentist purchasing a second commercial building to rent to a neighbouring business: not eligible.
7. Personal assets
CSBFP cannot finance personal assets or vehicles used primarily for personal purposes. The asset must be used in the business.
Vehicles: A vehicle used exclusively for business operations (a delivery van, a service truck, a company vehicle driven only by employees) may be eligible. A vehicle used partly for personal driving and partly for business (the classic "company car") is generally not eligible — or is eligible only for the business-use proportion, which creates documentation complexity that most lenders prefer to avoid. See the CSBFP vehicles discussion for the detailed treatment.
8. Deposits and retainers not applied to eligible costs
Deposits paid to vendors or contractors before a lease is signed or before the CSBFP loan is registered may or may not be eligible depending on timing (the 365-day lookback) and whether the deposit is ultimately applied to an eligible invoice. A security deposit paid to a landlord (a refundable deposit, not an eligible cost) is never eligible. A vendor deposit that is part of an equipment purchase contract and is credited against the final invoice is eligible once the equipment is delivered and invoiced.
9. Fees and professional services
Legal fees, accounting fees, appraisal fees, application preparation fees, business plan preparation fees, and other professional services related to the CSBFP application or project are not eligible CSBFP costs.
The registration fee itself is eligible to be added to the loan: The 2% CSBFP registration fee can be rolled into the loan amount (added to the financed amount). But third-party advisory fees for the transaction are not financed.
10. Franchise fees beyond the intangibles sub-limit
Initial franchise fees — the upfront fee paid to a franchisor for the right to operate a franchise — are eligible under the intangibles sub-limit (up to $150,000). If the franchise fee is $200,000, only $150,000 is eligible through CSBFP; the remaining $50,000 must be funded from equity or conventional financing.
Ongoing royalties are not eligible. Only the initial upfront franchise fee (a capital asset — the franchise licence) is eligible; the ongoing royalty payments (an operating expense) are not.
A note on borderline items
The program rules leave some items in a grey zone that depends on the specific asset, its use, and the lender's interpretation. Software is a good example: off-the-shelf software is eligible under the intangibles sub-limit; ongoing SaaS subscription fees (monthly software costs) are operating expenses and not eligible for a capital loan.
For any item that is not clearly on the eligible list, the best approach is to raise it with the lender before finalizing the project budget. A cost that a lender cannot disburse against is either funded from equity or left out of the project — which is a much easier adjustment before the loan is registered than after.
For the full eligible cost list, see CSBFP eligible costs. For what happens when project costs change after approval, see CSBFP scope changes. For the complete document checklist, see the CSBFP document checklist.
Written by Capital Toolkit