Presentation: Understanding the Program

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Overview

About the Program

  • The CSBF Program is a loan loss-sharing program between the government and the private sector lenders that facilitates access to affordable asset-based financing to small and medium-sized businesses.
  • The CSBF Program operates in all provinces and territories through a network of lenders including:
    • Chartered Banks
    • Credit Unions, Caisses populaires

Main Objectives:

  • To increase availability of financing for the establishment, expansion, modernization and improvement of small businesses.
  • To facilitate access to loans that would not otherwise be available to small businesses or would only obtain under less favourable terms.
  • To stimulate economic growth and create jobs among small and medium-sized enterprises.

Eligibility and Other Criteria

  • Businesses operating for profit with gross annual revenues of $5 million or less
  • Borrower can be sole proprietor, partnership or corporation.
  • Non-eligible businesses:
    • Farming
    • Religious/charitable organizations
    • Not-for-profit organizations
  • Maximum amount of the loan:
    • Total outstanding balance of all CSBF Program loans must not exceed $500,000, including related borrowers (Of which no more than $350,000 can be used for leasehold improvements and equipment)
  • Related borrowers:
    • If an existing borrower and/or potential borrowers are related and cannot pass the independent small business test, they are considered to be one small business and therefore one borrower. In this case, related borrowers are limited to a maximum outstanding loan of $500,000 amongst them.
  • Independent Small Business Test:
    • Related borrowers are considered to be operating independent small businesses if the following conditions are met:
      • they are operating separate small businesses at different premises; and
      • neither business derives more than 25% of its actual or projected gross revenues from the other
    • If related borrowers pass the independent small business test, each is, then, eligible for a maximum loan of $500,000.
  • Financing limited to 90% of the cost of the eligible assets*:
    • Real Property (land, building)
    • Leasehold Improvements
    • Equipment (new or used)
  • 180-day rule:
    • Lender may include expenditures/commitments made within 180 days prior to the date on which the loan is approved.
  • Proof of purchase and payment must be obtained:
    • Cancelled cheque, Debit/Credit Card, Line of Credit, Cash payment, Sales contract, Attestation.

* For more information on Eligible and Ineligible items, see document 'Information for Lenders: Making a Loan 2011'. (Return to reference)

Calculating the Eligible Amount

Step 1: Eligible costs of assets purchased

  • 90% of the total amount (less refundable taxes) of the invoice/purchase contract, for which there is proof of payment.
    Note: For those loans that require an appraisal, the eligible cost is the lesser of the cost of the eligible assets (less refundable taxes) and the appraised value of the eligible assets.

Step 2: Eligible proof of payment, is the lesser of:

  • Proof of payment that equals the amount of the invoice/purchase contract (less refundable taxes), and
  • The amount of the payment if it is less than the amount of the invoice/purchase contract (less refundable taxes).

Step 3: Eligible amount of the loan, is the lesser of:

  • Step 1: the eligible cost of assets purchased, and
  • Step 2: the eligible proof of payment.

Maximum Loan Size: Example

Maximum Loan Size: Example
(Amounts already reduced at 90% of the costs of the assets)
Immovables/Real Property Equipment and Leasehold Improvements Registration Fee Total Maximum Loan Amount
$500,000 $0 $10,000 $510,000 $500,000
$150,000 $350,000 $10,000 $510,000 $500,000
$0 $350,000 $7,000 $357,000 $350,000
$100,000 $350,000 $9,000 $459,000 $452,000
$350,000 $100,000 $9,000 $459,000 $459,000

Terms of the Loan and Fees

  • Maximum loan guarantee: 10 years
  • Minimum of one payment of principal and interest scheduled per year
  • Interest rate*
    • Maximum variable rate: Prime lending rate + 3%
    • Maximum fixed rate: Single family residential mortgage rate + 3%
      (* Includes 1.25% annual administration fee remitted to Industry Canada) (Return to reference)
  • Registration fee paid by the borrower
    • 2% of the total loan amount (can be financed).
  • Administration Fee
    • 1.25% administration fee payable quarterly by the lender

Risk Sharing: Industry Canada / Lender

In case of default by a borrower, Industry Canada will reimburse a maximum of 85% of the lender's net eligible loss up to the maximum Minister's Liability towards the lender.

Minister's Liability

The limitation of the Minister's liability to each lender is calculated on the total of loans made and registered for each CSBFP loan lending period of five years*, as follows:

  • 90% of 1st $250,000
  • 50% of following $250,000
  • 12% on balance (for loans made after March 31, 2009)
  • 10% on balance (for loans made prior to April 1, 2009)

    • *CSBFP loan lending periods are 1999-2004, 2004-2009, 2009-2014

Minister's Liability – Example

Minister's Liability – Example
Program Liability Period Number of Loans Value of Loans Maximum Minister's Liability Number of Claims Paid Value of Claims Paid Remaining Minister's Liability

* The Minister will stop paying lender claims for a specific period if the maximum Minister's Liability is reached. (Return to reference)
CSBFA C03 (2009-2014) 28 $2,571,541. $598,585. 0 $0. $598,585.
CSBFA C02 (2004-2009) 105 $9,565,143. $1,256,514. 16 $632,856. $623,658.
CSBFA C01 (1999-2004) 139 $8,703,223. $1,170,322. 38 $1,170,322. $0.*

How the Program Operates

  • The CSBFP is delivered by financial institutions through their branches across Canada.
  • Small businesses seek CSBFP loans from banks, credit unions or caisses populaires by presenting their business plan to their commercial loan officer.
  • Lenders are responsible for all credit decisions. The funds disbursed are those of the lender, not Industry Canada.
  • Industry Canada does not get involved in the decision making process of granting loans under the Program and the day to day oversight of the loans.
  • In the event of loan default, Industry Canada pays 85% of the net eligible losses to the lender.
  • The CSBFP collects fees to help offset the cost of claims.

Eligible Lenders

  • Members of the Canadian Payments Association
  • Members of a co-operative credit society that is a member of the CPA
  • Any other organization designated by the Minister

Who does what : Industry Canada / Lenders

Role of Industry Canada:

  • Design the program and legislation and provide information to lenders
  • Ensure awareness of the program
  • Approve and designate lenders
  • Register loans and collect registration and administration fees
  • Review and pay lender's claims for losses on defaulted loans
  • Conduct on-site compliance reviews
  • Review and report on program performance to Parliament

Role of Lenders:

  • Make credit decisions
  • Apply same due diligence as for conventional loans (e.g. credit check, borrower's ability to repay)
  • Register loans with Industry Canada, remit registration fees paid by small businesses and report and pay administration fees
  • Realize all securities and guarantees (in case of default) before submitting a claim for loss

Program Activity (2010-2011)

Canada

  • 7,466 loans, totalling almost $1.03 billion
  • $137,521 average loan size

Job Creation

  • 18,697 new jobs created
  • Average of 2.5 new jobs per loan

Age of business

  • less than 1 year =57.3%
  • 1-3 years = 11.0%
  • 3 years plus = 31.7%

Type of Assets

  • Equipment = 43.1%
  • Leasehold improvements = 29.4%
  • Real property = 27.5%

What's in it for Lenders?

  • Acquire new clients and meet the growing needs of businesses.
  • Share the risk with Industry Canada
    maximum of 85% of the lender's net eligible loss in case of default by a borrower.

Reference Tools

Lenders should always refer to the Act and Regulations, as they constitute the legal authority for the program. They contain the procedures and conditions for making and administering CSBF loans and for submitting and substantiating claims for loan losses.

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