The Canada Small Business Financing Program covers five categories of eligible costs: equipment, leasehold improvements, real property (land and buildings), intangibles (including goodwill on a going-concern purchase, and intellectual property), and eligible working-capital costs. Software is treated as equipment, not as an intangible. 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
Inventory, the goods, raw materials, or stock a business holds for sale, is eligible under CSBFP, financed as a working-capital cost. This is a common point of confusion, some borrowers assume inventory is categorically excluded because it turns over rather than sitting on the balance sheet as a fixed asset, but the program's working-capital category exists specifically to cover costs like this.
How it's financed: Inventory falls inside the $150,000 intangibles-and-working-capital sub-limit on the term loan, alongside other working-capital costs like payroll and rent. It's also available through CSBFP's standalone working-capital line of credit (up to $150,000, separate from the term loan), which is a better fit for inventory that needs to be replenished on a cycle rather than financed once.
Where the confusion comes from: CSBFP does not offer a dedicated, inventory-only revolving facility the way some conventional asset-based lenders do, sized to a borrowing base against inventory value specifically. For a business whose primary need is a large, inventory-specific revolving line rather than a one-time or working-capital-sub-limit amount, a conventional asset-based facility may fit better than CSBFP's working-capital categories. That's a question of which product fits a large, dedicated inventory facility best, not a rule that CSBFP cannot finance inventory at all.
Common scenario: A retail business buying $80,000 of opening merchandise. This can be included in a CSBFP loan as a working-capital cost, subject to the $150,000 intangibles-and-working-capital sub-limit (shared with any other working-capital or intangible costs on the same file), even while the business is also financing store fixtures and leasehold improvements under CSBFP's other categories.
2. Working capital (general)
Since July 4, 2022, working-capital costs (such as payroll, rent and other day-to-day operating expenses) are eligible for CSBFP term loan financing, but only within the $150,000 limit shared with intangibles, inside the $500,000 non-real-property limit. Working capital beyond that limit is not eligible.
Separately: The CSBFP revolving line of credit (introduced in 2022) is available for working capital purposes, separate from the term loan, up to $150,000. It does not require an existing CSBFP term loan. Not all lenders offer this product.
Common scenario: A startup business wants $50,000 "to cover the first 6 months of operations." Eligible operating costs such as payroll and rent can be included in the CSBFP term loan within the $150,000 intangibles-and-working-capital limit, or funded through the CSBFP line of credit if the lender offers it. A conventional operating line of credit or personal savings injection covers anything above the program limits.
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, or a previous CSBFP loan. (Repaying a shareholder loan that funded eligible costs within the 365-day window is the exception, covered below.)
Why: The program requires the loan proceeds to be applied to defined eligible costs of the business. 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 permitted when the shareholder's money paid for eligible costs within the 365 days before the loan is approved (or conditionally approved), and the borrower can prove those payments with invoices and proof of payment. Shareholder advances for costs paid earlier than that, or for costs that were never eligible, cannot be repaid from CSBFP proceeds.
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. That $150,000 sits inside, not on top of, the overall $500,000 non-real-property sub-limit, so equipment, leaseholds, and goodwill on the same file all draw from the same $500,000 envelope. Goodwill above $150,000 cannot be financed through CSBFP, and total non-real-property costs still cannot exceed $500,000 even when goodwill itself is under its own $150,000 piece of that cap.
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: $250,000 (non-RP sub-limit)
- Leaseholds: $100,000 (non-RP sub-limit)
- Goodwill: $150,000 (intangibles sub-limit, nested inside the same $500,000 non-RP envelope)
- Total CSBFP: $500,000
The remaining $250,000 in goodwill above the intangibles sub-limit, plus the $50,000 of equipment and leasehold costs that no longer fit once goodwill has used its share of the shared $500,000 envelope, a combined $300,000, must be financed conventionally or from the borrower's equity.
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
Since July 4, 2022, professional fees (legal, accounting and appraisal fees) are eligible as working-capital costs, within the $150,000 limit shared by intangibles and working capital. The usual conditions still apply: the fees must be for the business and paid or committed within the 365 days before loan approval.
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).
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: purchased software is treated as equipment, not as an intangible, so it does not use the $150,000 intangibles-and-working-capital limit; ongoing SaaS subscription fees (monthly software costs) are operating expenses, so ask the lender whether it will treat them as working-capital costs within that limit.
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