How do I write the use-of-funds section lenders actually approve?

Ask a commercial lender where loan applications quietly die and the use-of-funds section comes up before the financials do. It is the first place an underwriter tests whether the borrower has actually planned the spending or is asking for a number — and a bucketed request like "$200,000 for general business growth" fails that test on sight. This guide covers what the section must contain: a line-itemed schedule tied to repayment, amounts that survive the debt-service coverage test, terms matched to asset life, and — for CSBFP files — every dollar tagged to an eligible cost class inside the program's nested sub-limits. It ends with a worked $400,000 schedule you can adapt.

What does a use-of-funds section lenders approve actually look like?

A line-itemed breakdown where every dollar is named, verifiable, and tied to how it gets repaid — that specificity is the single biggest credibility driver in a Canadian loan file. Each line states what is being bought, what it costs (with a quote or estimate behind it), and how it contributes to the cash flow that services the loan.

The reason is mechanical, not stylistic. Of the three things every lender reads a plan for, repayment capacity comes first, and the use-of-funds schedule is where the underwriter checks that the borrowing produces the cash flow the projections claim. A $180,000 equipment line backed by a supplier quote, feeding a stated capacity increase, feeding the revenue line in the model — that chain is checkable. "$200K for growth" is not, and an underwriter who cannot check a claim treats it as unsupported.

The bar is not exotic. Statistics Canada's 2023 survey found 88.2% of SMEs had their largest debt-financing request fully or partially approved — most reasonable files get through. The declines cluster in the files that make the underwriter guess.

Why does "$200K for general growth" get flagged?

Because a vague use of funds is one of the most common decline reasons in Canadian small-business lending, and it signals two things at once: the spending is not planned, and the borrower may not know what the money is for either. Underwriters read unspecified "working capital" asks the same way — working capital is a legitimate category, but it has to be quantified as months of named operating costs, not used as a catch-all.

The subtler version of the same failure is framing. A request that reads as survival — covering losses, catching up on payables, replacing revenue that disappeared — gets declined even when the same dollar amount, spent on the same things, would be approved as growth. Lenders finance plans that generate repayment, not gaps that consume it. If the honest purpose is bridging to a turnaround, the plan has to show the turnaround with the same rigour a growth plan shows expansion: what changes, when, and what the cash flow looks like after.

The related integrity check: disclose everything the lender will find anyway. Undisclosed CRA tax or payroll arrears are a frequent automatic decline — not because arrears are always fatal, but because discovering them independently destroys the file's credibility. Disclosed and scheduled, they are a manageable line item; discovered, they end the conversation. The same pattern runs through the reasons banks reject business plans generally: it is rarely one bad number, it is the underwriter losing confidence in the numbers as a whole.

How do I tie each line item to repayment?

Show the debt-service coverage ratio the loan produces, and make each line item's contribution to it traceable. DSCR — modelled operating cash flow divided by total debt service — is the number the request lives or dies on. BDC looks for roughly 1.2×; most Canadian banks want 1.25×; below 1.0× is an automatic red flag, because the business cannot cover the payment even before anything goes wrong.

Practically, that means the use-of-funds schedule and the cash-flow projection are one document in two views. The equipment line creates the capacity behind the revenue assumption; the leasehold line opens the location generating the new sales; the working-capital line carries the ramp-up months before those sales collect. If a line item cannot be traced into the projection — it neither generates cash nor protects it — the underwriter will ask why it is being financed at all.

The second half of tying funds to repayment is matching the term to the asset life. Equipment with a ten-year useful life financed over a sensible seven-to-ten-year term keeps payments aligned with the value the asset produces. The mismatches cut both ways: financing long-lived assets on short terms inflates payments and crushes DSCR; financing short-lived spending (a marketing campaign, seasonal inventory) over ten years means paying interest long after the value is gone. Leasehold improvements should not amortize past the lease. An underwriter reads term-to-asset-life mismatches as a borrower who has not thought about year three.

How much should I ask for?

The amount the itemized schedule adds up to — not a round number, and not a padded one. Borrowing too little and borrowing too much are both named decline patterns, and both are symptoms of skipping the line-item work.

Too little looks prudent and is not. A build-out that runs out of money at 80% complete produces an asset that generates no revenue and a loan that still has to be serviced — and coming back mid-project for a top-up is a much harder conversation than sizing the request correctly. This is what the contingency line is for: 5–10% of hard costs, sitting visibly in the schedule. Underwriters read a contingency line as realism, not padding, because they have seen what happens to files without one.

Too much means paying interest on idle cash and telling the lender the plan was built to a number rather than a need. If the schedule totals $383,000, ask for $383,000 plus contingency and fees — not $450,000 "to be safe."

The equity injection belongs in the same arithmetic. State the owner's contribution as a specific figure with a named source — savings, an asset sale, a documented gift — because a real, sourced contribution is read as commitment, and its absence is a credit-committee flag regardless of any program guarantee. For scale: the average CSBFP loan in the program's record 2024–25 year was $294,067 per ISED, and 74.1% of that lending went to businesses under a year old — the program is built for exactly the files where the schedule has to do the convincing, because there is no operating history to lean on.

What does a lender-ready use-of-funds table look like?

Here is a worked schedule for a $400,000 request — a business opening a second production location — with every line tagged to a CSBFP cost class and reconciled to the total project:

Item	CSBFP cost class	Amount	Repayment link
Two production machines (per supplier quotes)	Equipment	$215,000	Adds capacity behind the year-1 revenue increase in the projections
Unit build-out — electrical, flooring, millwork (per contractor quote)	Leasehold improvements	$125,000	Opens the second location; amortization set inside the lease term
Opening inventory + 3 months payroll and rent at new unit	Working capital	$37,000	Carries the ramp-up until receipts cover operating costs
Contingency (~5% of hard costs)	Working capital	$15,000	Absorbs build-out overruns without a mid-project top-up
2% registration fee (capitalized)	Registration fee	$8,000	Program fee, financed into the loan
CSBFP term loan request		$400,000
Owner's contribution (personal savings, statements provided)	Equity	$45,000	Total project $445,000; loan ≈ 90% of project cost

Two compliance subtotals the plan should state so the reviewer doesn't have to compute them: everything other than real property ($400,000) sits under the program's $500,000 cap, and intangibles plus working capital ($37,000 + $15,000 = $52,000) sits well under the $150,000 sub-limit. Note the contingency is tagged to a cost class rather than floating — an untagged contingency line on a CSBFP schedule is a registration problem, not just a style problem.

This is the format that reads as planned: named items, quotes behind the numbers, classes tagged, sub-limits pre-checked, contribution sourced, and a repayment link on every line.

Which costs are eligible under the CSBFP — and which aren't?

Five asset classes are eligible, and since the July 2022 amendments they include intangibles and working capital: (1) real property purchase or improvement; (2) new or used equipment; (3) leasehold improvements; (4) intangible assets — franchise fees, goodwill as part of a going-concern purchase, permits and licences, incorporation costs, software; and (5) working capital — inventory, payroll, rent, day-to-day operating costs. The 2% registration fee can be financed on top.

The limits nest, and most guides get this wrong. The maximum is $1 million in term loans. Within that, a maximum of $500,000 can go to anything other than real property — equipment, leaseholds, intangibles, and working capital combined. And within that $500,000, a maximum of $150,000 can go to intangibles and working capital. (A separate $150,000 line of credit for working capital is available on top of the term envelope, taking the total program ceiling to $1.15 million.) A schedule with $600,000 of equipment fails even though it is under $1 million; a schedule with $200,000 of franchise fees and inventory fails even though it is under $500,000. Build the schedule against the caps — the full program mechanics are in our CSBFP business plan guide.

Explicitly ineligible — keep these out of the schedule:

• Purchase of shares in a corporation (asset purchases only)
• Refinancing or consolidating existing debt
• Standalone goodwill — eligible only as part of a going-concern purchase alongside other assets
• The borrower's own labour (subcontractors are fine)
• The vendor take-back portion of a purchase price
• Expenditures already financed on another instrument

One flexibility worth knowing: the 365-day rule lets the loan finance eligible costs already incurred up to a year before approval — useful when an owner has fronted equipment or build-out costs and wants to bring them into the financing. That is reimbursement of eligible spending, not a back door to refinancing.

On exposure: under the CSBFP the lender may take an unsecured personal guarantee up to the original amount of the loan disbursed — the 25% cap that still circulates online is an outdated rule — but the guarantee cannot be secured against personal assets. State in the plan the guarantee the owner is prepared to give; on this, as with CRA arrears, being explicit reads as confidence.

The bottom line

The use-of-funds section is a repayment argument wearing a shopping list. Line-item every dollar with a quote behind it, tie each line to the cash flow that services the loan, show DSCR clearing 1.25× with a downside case, match terms to asset life, size the ask to the schedule plus a tagged contingency, and — on CSBFP files — pre-check the nested $500K and $150K sub-limits so the underwriter never has to. If you are still deciding whether a full plan is required at all, the answer for any file above a small unsecured limit is yes, and this section is its spine. Bridge Note, a Canadian business plan service that writes lender-ready plans for BDC, CSBFP, and big-bank loan applications, builds the schedule and the projections as one reconciled document — because that is how the underwriter reads them. We don't decide the loan; we make sure nothing in the file gives the lender a reason to guess.

Frequently asked questions

Can I use a CSBFP loan to buy the shares of an existing business?

No. Share purchases are explicitly ineligible under the CSBFP. The program finances assets, so an acquisition must be structured as an asset purchase, with the price mapped to eligible classes — equipment, leaseholds, real property, and intangibles such as goodwill tied to the going-concern purchase. Any vendor take-back portion is also ineligible. If the deal must be a share sale, that portion needs conventional or BDC acquisition financing instead.

Can CSBFP money be used to refinance my existing business debt?

No. Refinancing or consolidating existing non-CSBFP debt is an ineligible use of funds. The one flexibility is the 365-day rule: eligible costs already paid within the 365 days before approval can be financed retroactively — reimbursement of eligible asset spending, not refinancing. A request that includes "pay down the operating line" will be flagged and declined for that portion.

Are franchise fees and goodwill financeable under the CSBFP?

Yes, since July 2022, with conditions. Franchise fees are financeable as intangible assets. Goodwill is financeable only as part of a going-concern business purchase — standalone goodwill is explicitly ineligible. Both sit inside the $150,000 intangibles-and-working-capital sub-limit, which sits inside the $500,000 non-real-property cap, inside the $1 million term maximum. The schedule has to respect all three nested caps.

Why was my loan declined even though my business is profitable?

Because lenders lend against cash flow and disclosure, not profit. Common reasons: DSCR is too thin once owner draws, existing debt, and the new payment are counted — below 1.0× is an automatic red flag and banks want roughly 1.25×; the use of funds is vague; there are undisclosed CRA tax or payroll arrears, a frequent automatic decline when found independently; existing debt load is high; or the request reads as survival rather than growth. Profitability gets the meeting. Coverage, specificity, and clean disclosure get the approval.

How specific do the line items need to be?

Specific enough to verify. Equipment lines backed by supplier quotes naming the item and vendor; build-out lines backed by contractor estimates; working capital quantified as months of named operating costs reconciled to the cash-flow projection; contingency sized at 5–10% of hard costs and tagged to a cost class. On a CSBFP file, every line must also map to an eligible cost class, because the lender registers the loan against those classes. "$200K for general business growth" is flagged immediately.

Sources

1. Canada Small Business Financing Program Guidelines — Innovation, Science and Economic Development Canada, 2025
2. Bulletin: 2022 changes to the Canada Small Business Financing Program — ISED, July 2022
3. CSBFP Overview and Highlights 2024–25 — ISED, 2025
4. How a bank looks at your business (DSCR and debt-to-equity) — BDC, 2026
5. Survey on Financing and Growth of Small and Medium Enterprises, 2023 — Statistics Canada / ISED, February 2025