BDC loan vs bank loan for working capital in Canada

What to take away

The Business Development Bank of Canada (BDC) is a Crown corporation that lends where the chartered banks have passed, and that shapes every term below. The chartered banks in question are mainly the Royal Bank of Canada (RBC), TD, BMO, CIBC, Scotiabank and National Bank.

Where BDC and the banks divide the market

A chartered bank prices working capital off the borrower's balance sheet and its own cost of funds. BDC prices off a development mandate, so it accepts a thinner file and charges for the risk it carries. Both are direct lenders, so neither adds a broker fee.

The split shows at screening. A bank reads statements, personal credit and collateral first. BDC reads the plan, the sector and management experience, and will spend weeks on a file a scoring model rejects in minutes.

The criteria that decide a working capital file

Both columns move with the file, so read the table as a map of what gets negotiated, not a price list. A borrower weighing an operating line against a term facility should read about what a line of credit calculator cannot price, because the two are repaid on different clocks.

BDC working capital loan: what it costs and demands

BDC asks for a Canadian business with a viable plan, management experience in the sector, and a personal guarantee from the owners. An account manager assesses the file and will ask how the money gets used.

BDC does not publish one working capital rate. It quotes a floating or fixed rate per file, built from its own base rate plus a premium for the risk it sees, and loan size and term are also set per file, so ask for a written quote. Rates sit above bank pricing. Ask what the application and repayment offer adds once fees and review charges are counted, rather than comparing headline rates. A BDC working capital term loan might quote prime plus 1.5 to 3 points as an illustration; the figure is set per file.

BDC funds younger businesses and seasonal swings that a bank would decline. That patience shows up as a higher all-in cost.

Chartered bank working capital: what it costs and demands

A bank operating line is margined against current assets, commonly 75 percent of receivables under 90 days and up to 50 percent of inventory, with the rest funded by the owner. The rate tracks the bank's prime, which each of the big banks publishes on its website and which moves with the Bank of Canada's policy rate. The margin depends on debt levels, covenants and how long the account has been open. As an illustration only, a strong borrower might see prime plus 1 to 2 points and a weaker file prime plus 3 or more.

Term financing at a bank sometimes runs through the Canada Small Business Financing Program (CSBFP), set up under the Canada Small Business Financing Act. The program is built mainly for fixed assets such as equipment and leasehold improvements, so confirm with the lender whether any working capital portion qualifies. It carries a registration fee, currently 2 percent of the loan, plus a capped interest rate and limits on the security a lender can take. Check the loan ceiling and maximum term on the program's page at Innovation, Science and Economic Development Canada.

Banks win on cost and speed for a borrower they already know. The trade is a demand facility, and the annual renewal is a real event rather than a formality. Our breakdown of line of credit costs shows how far a quoted rate sits from the real price.

Where each lender is the right answer

Pick the bank when the business has three years of filed statements and a clean personal credit file. The owner wants the lowest spread and a line that can be drawn by transfer. A relationship manager who knows the account shortens every renewal.

Pick BDC when the file is young or the collateral thin. BDC also fits a fixed term need with a defined repayment schedule, rather than a revolving line, and an owner who can wait weeks for funds.

Neither choice is wrong. The mistake is applying to one lender while describing the other lender's need.

What neither BDC nor a bank will fix

All working capital lenders share one limit: they will not fund a gap the business keeps reopening. Working capital is the money tied up between paying suppliers and collecting customers, and a structurally negative cycle returns every quarter.

A lender will renew a line a business repays on schedule. It will shrink a line a business runs at its ceiling every month.

A personal guarantee puts the owner's assets behind the debt, and a spouse may be asked to sign. Neither lender will chase your customers, which is why some owners check what invoice financing requires when receivables are the problem.

Before applying to either, gather:

Common questions