Government loan or government loan guarantee – what’s the difference?
Simply put, a government loan is offered directly by a government ministry or agency. There are many popular loan programs run by government agencies like BDC (Business Development Bank of Canada), and by organizations like Community Futures Development Corporations (CFDCs) in rural parts of Ontario.
A government loan guarantee means that partner organizations (usually commercial banks) run the loan program and the government guarantees a percentage of the loan value – so if a borrower defaults, the bank knows they’ll get most (if not all) of their money back.
Why would the government make such a guarantee? Because it helps “underserved” communities get loans. Demographic groups such as Indigenous peoples and people with disabilities, along with new (start-up) businesses have historically had a hard time getting business loans. So the government steps in and guarantees loans, to help those groups get access to financing.
As an example, with the first government loan guarantee program on our list below (the CSBFP), the Government of Canada guarantees 85% of the loan value. This obviously reduces the risk to the banks and makes them more willing to lend to groups that they might not otherwise lend to.
Let’s get into our top picks for government loan guarantees:
Best Government Loan Guarantee Programs
1. Canada Small Business Financing Program (CSBFP)
The Canada Small Business Financing Program makes it easier for small businesses to obtain loans from financial institutions because the government shares the risk with the lenders. Backed by this loan guarantee, Canadian small businesses can access loan products of up to $1.15 million.
2. Export Development Canada (EDC) – Export Guarantee Program
Through the Export Guarantee Program EDC shares the risk with the applicant’s bank by providing a guarantee on the money he borrows, increasing access to working capital in order to grow on foreign markets.
3. Community Futures Ontario – Community Futures Program – Access to Capital
Through Access to Capital program, Community Futures Ontario administers local investment funds to help finance new or existing small businesses and social enterprises for start-up, expansion or stabilization plans that help maintain or create jobs in rural Ontario.
Funding takes the form of repayable financing of $150,000 or more on commercial terms through loans, loan guarantees or equity investments. Below you’ll find the Community Futures Development Organizations that also provide loan guarantees to small businesses in their area.
Agriculture & Agrifood Loan Guarantees
4. Agriculture and Agri-Food Canada (AAFC) – Advance Payments Program
The Advance Payments Program is a federal loan guarantee program which provides agricultural producers with easy access to low-interest cash advances.
5. Agriculture and Agri-Food Canada (AAFC) – Canadian Agricultural Loans Act (CALA) Program
The Canadian Agricultural Loans Act Program is a loan guarantee program designed to increase the availability of loans to farmers and agricultural co-operatives. Farmers can use these loans to establish, improve, and develop farms, while agricultural co-operatives may also access loans to process, distribute, or market the products of farming.
6. Beef Farmers of Ontario (BFO) – Feeder Cattle Loan Guarantee Program
The Ontario Feeder Cattle Loan Guarantee Program supports the operation of 15 feeder cattle co-operatives across the province. Each feeder cattle co-op is operated by a board of directors who negotiates a credit limit with a lender in order to assist members with the purchase of cattle for further feeding.
Beef farmers can apply for a purchase order for the amount of anticipated feeder cattle purchase, maximum of up to $1,000,000 for individuals and $1,500,000 for corporations.
7. Agricultural Credit Corporation (ACC) – Ginseng Storage Loan Guarantee Pilot Program (GSLGPP)
The Ginseng Storage Loan Guarantee Pilot Program (GSLGPP) is an industry-led pilot loan guarantee program created by the Government of Ontario. It aims to assist the province’s ginseng farmers in sustaining and growing their business.