The Business Development Bank of Canada (BDC) is adding the Royal Bank of Canada (RBC) to its roster of financial institution partners as it seeks to provide commercial loans to more historically underserved entrepreneurs.
The program is open to startups and other businesses with less than $10 million in revenue that have been operational for more than a year.
The Crown corporation also revealed that it plans to guarantee a minimum of $800 million in loans for small and medium-sized business owners in Canada, and hopes to eventually grow that number.
BDC’s Business Accelerator Loan Program provides commercial financing to founders through partner organizations, including TD Bank, Meridian Credit Union, Desjardins, and now RBC. BDC provides a guarantee of up to 85 percent of the loan amount to these financial institutions, which supply the loan capital.
“By leveraging the reach [of these financial institutions], we can reach more entrepreneurs, meet more of their needs, and provide the risk-taking, which otherwise might not have been met based on the criteria of the [financial] institution,” Miguel Barrieras, BDC’s chief community banking and impact officer, told BetaKit in an interview.
The program is part of BDC’s Community Banking initiative, launched in November, which aims to reverse a trend of faltering entrepreneurship rates in Canada. Through the initiative, BDC supports local lending partners such as Futurpreneur and Evol with co-lending, indirect lending, loan guarantees, and advisory services.
BDC claimed the program fulfills the Crown corporation’s mandate by supporting business owners who have historically faced more barriers to accessing commercial financing, such as those who live in remote areas, have little credit history, are from younger age groups, or have “unconventional business models.”
Barrieras told BetaKit that the Business Accelerator Loan Program offers a “complementary” component to equity financing, once a startup’s product hits the market.
“Once they have some revenue and are commercializing, you need financing to support inventory, liquidity to run operations,” Barrieras said. “That’s when the loan we’re providing would come into play.”
The program is open to startups and other businesses with less than $10 million in revenue that have been operational for more than a year. Cheque sizes range from $25,000 to $500,000, Barrieras said. Partner lenders such as RBC determine the interest rate, which Barrieras said cannot exceed the prime rate plus five percent (which would currently add up to 9.95 percent).
Founders applying must already be customers of the BDC partner lender they are applying through, and a full personal guarantee is required. BDC also charges an application fee of one percent of the loan amount.
Barrieras claimed that the loan program, which has been operational since November, has so far fulfilled its goal of supporting small businesses and underrepresented entrepreneurs. Ninety-two percent of businesses receiving loans are making less than $2 million in annual sales, he said, and three-quarters of recipient founders who chose to respond to demographic questions self-identified as members of marginalized communities. These include people in rural areas, women, Indigenous and racialized people, LGBTQIA+ people, those new to Canada, and those living with a disability.
As part of the larger Community Banking initiative, BDC committed $100 million last month to guarantee loans issued by the majority Indigenous-owned First Nations Bank of Canada to Indigenous organizations buying Canadian businesses, as a wave of older Canadian entrepreneurs will soon retire and sell their companies.
Feature image courtesy BDC.