Bulletins – September 2000

---

Bulletin (PDF Version, 69 KB — 1 page)

Date of Default and Date on the Notice of Default

(Reference: CSBF Guidelines Item 1, Section C; s. 36 and 37 CSBF Regulations, and CSBF Guidelines Item 14, Section D; s. 17 SBL Regulations 1993)

Lenders have requested clarification of the date of default in the Small Business Loans (SBL) Regulations and the date in the Notice of Default in the Canada Small Business Financing (CSBF) Regulations. These terms are important in establishing the commencement date of the 36 month limitation period for submitting a claim for loss.

Under the Small Business Loans Regulations, the date of default is the latest of:

• the date when a payment (interest or principal) is not made on the date it is due; or
• the date to which the interest was last paid by the borrower.

Under the Canada Small Business Financing Regulations, the date in the Notice of Default (box 20 of the Claim for Loss) is determined as follows:

1. when the borrower fails to comply with a material condition of the loan, the lender and the borrower should strive to remedy such failure;
2. where this is not possible, the lender must send a Notice of Default specifying a date by which the borrower must remedy the failure of material conditions stipulated;
3. when the borrower fails to act upon the Notice, the date in the Notice of Default is the date specified in such Notice.

Note: A material condition is one that could have an impact on the collection of the loan (e.g. failure to maintain insurance, pay property taxes). A minor failure by the borrower such as late filing of yearly financial statements is not a material condition and would not be considered a default.

Related Borrower – Independent Small Business

(Reference: CSBF Guidelines Item 2.2, Section A; s. 3(2) to 3(6) CSBF Regulations)

The Administration has received a number of enquiries from lenders regarding the interpretation of the terms  related borrower  and  independent small business  as defined under sections 3(2) to 3(6) of the CSBF Regulations. In essence, the Administration considers that  borrowers  are related when two or more small businesses are operating as different  persons , but their operational structures (ie. revenues, administrative services, etc.) are linked in such a way that they are, for all intent and purposes, one small business, and therefore one borrower.

In this case, the  borrower  is eligible for a maximum loan amount of $250,000. However, if the  related borrower  is operating an  independent small businesses  (as defined under section 3(6) of the CSBF Regulations), then each borrower is eligible for the maximum loan amount of $250,000. An example may clarify these two terms.

Suppose a person owns and  controls  (as defined under s. 3(4) of the CSBF Regulations) three businesses – a trucking business, a mini-storage business and a fast food restaurant. According to section 3(2) of the CSBF Regulations all three businesses are related given all three are controlled by the same person. Hence, all three corporations are collectively eligible for the maximum loan amount of $250,000 since they are considered a  related borrower . However, if any one of the three were located at different premises and did not derive more than 25% of its actual or projected gross revenues from any of the other, then that business would be considered an independent small business.

In the event they are independent small businesses, each is eligible for the maximum loan amount of $250,000, even though they are  related borrowers . If two, or all, of the small businesses are sharing management and administrative services, facilities or overhead expenses, then collectively the small businesses are eligible for a maximum loan amount of $250,000.

---

Information on Downloading a PDF Reader
To access the Portable Document Format (PDF) version you must have a PDF reader installed. If you do not already have such a reader, there are numerous PDF readers available for free download or for purchase on the Internet:

• Adobe Reader
• Foxit Reader
• Xpdf
• eXPert PDF Reader