Bulletin — October 2009

If the following document is not accessible to you, please contact us to obtain other appropriate formats.

Printable version: Frequently Asked Questions on the Changes to the CSBF Program – October 2009 (PDF Format 58 KB)

Frequently Asked Questions on the Changes to the CSBF Program

On April 1, 2009, a number of changes to the CSBF Program came into effect:

  • amendments to the regulations focused on streamlining processes to be more in-line with conventional lending practices, and clarifying certain sections;
  • an increase to the maximum loan size from $250,000 to $500,000 of which a maximum of $350,000 can be used to finance the purchase of equipment and leasehold improvements;
  • an increase to the liability ceiling for each lender from 10% to 12% percent of the value of its portfolio in excess of $500,000.

Below are frequently asked questions and answers which help to explain these changes.

Canada Small Business Financing Act

  1. For loans made before April 1, 2009, can an increase to the registered loan amount over the $250K be requested?

    No, for loans made before April 1, 2009, the increase of a loan amount due to cost overruns will be limited to the maximum loan amount of $250K. However, lenders may increase total loans to the new maximum amount by making a new loan and submitting a new registration form.

  2. Does the $350,000 maximum loan amount include the registration fee, if financed, associated to it?

    Yes, the $350,000 includes the financed registration fee, even if this maximum amount is part of the $500,000 loan maximum. Where a loan is financing equipment and real property, the registration fee is calculated on the amount of each asset and is taken into consideration in determining not only the $500,000 maximum loan amount but also the maximum of $350,000 for equipment. The following example illustrates how the financing of the registration fee is factored in determining the maximum loan amount:

    How the financing of the registration fee is factored in determining the maximum loan amount
    Real Property financed Equipment
    financed    		 Leasehold improvements
    financed    		 Registration fee if financed Total loan
    $400,000     $8,000 $408,000
      $200,000 $140,000 $6,800 $346,800
    $150,000 $340,000   $6,800 ($340,000 x 2%)
    $3,000 ($150,000 x 2%)    		 $499,800
    $100,000 $350,000*   $7,000 ($350,000* x 2%)
    $2,000 ($100,000 x 2%)    		 $452,000
    $150,000 $350,000*   7,000 ($350,000* x 2%)
    3,000 ($150,000 x 2%)    		 $500,000

    *Related fees cannot be financed since the maximum loan amount for this loan class is $350,000. The lender could reduce the amount of the assets financed if the fee needs to be financed.

  3. Will the names of the shareholders and/or guarantors be required on the registration form, even if there are multiple shareholders and guarantors? What about the names of preferred shareholders?

    Lenders are required to provide all of the names of the common shareholders of the borrower and all of the personal and corporate guarantors. However, the lender will not be required to submit the names of the preferred shareholders.

  4. If the lender provides incorrect or incomplete information for the names of shareholder/guarantors on the Registration form, will this be a reason to adjust or reject a subsequent claim for that loan?

    Lenders should take all the necessary steps to provide the correct and complete information on the registration form or as soon as the lender becomes aware of it. A subsequent claim will not be rejected if the lack of such information on the registration form is inadvertent.

  5. If there is a change in the name of the shareholders and/or guarantors, does the CSBFP need to be informed?

    If lenders are informed of any changes to shareholders and/or personal or corporate guarantors, they should forward this information to the CSBFP.

  6. Does the $500K maximum loan amount apply to improvements as well as the purchase of real property or immovables? What other assets can be financed under the $500,000 loan maximum?

    Improvements to real property, for which the borrower is the owner, can be financed under the $500K maximum loan amount. Equipment and leasehold improvements can also be financed; however the financing of the purchase and/or improvement of equipment and leasehold improvements portion of the loan must not exceed $350,000.

  7. The maximum loan amount for a new loan includes the outstanding balances of prior loans granted under the Program. If the prior loans were multi-purpose loans how should the maximum loan amount with respect to each class be calculated?

    The lender must prorate the outstanding balance based on the initial registered amount.

  8. The change to the calculation of the minister liability increases to 12% for a lender's loan portfolio in excess of $500,000. Does this apply to all claims submitted after March 31, 2009?

    The change to the Minister's liability calculation only applies to loans made on or after April 1, 2009, which date is also the start of a new 5-year loan period under the CSBF program. Only claims received of loans made on or after April 1, 2009, will be applied against the new Minister's liability calculation. Claims received for loans made prior to April 1st will be applied against the existing Minister Liability using the 90%/50%/10% calculation under the appropriate lending period (C1: 1999-2004 or C2: 2004-2009).

Canada Small Business Financing Regulations

  1. The maximum loan term of 10 years begins on the day on which the 1st payment of principal and interest is due (Subsection 6(b)), rather than simply the first payment of principal. Which date is to be used if the 1st payment is only for principal or only for interest?

    To calculate the maximum loan term of 10 years, the 1st payment payable under the loan document should be used, irrespective of the fact that it's a payment of principal, a payment of interest or a payment of principal and interest.

  2. Subsection 9(2) states that for equipment and leasehold improvement loans where no professional association exists, the appraisal can be made by an appraiser who is at arm's length. Could you provide further clarity as to who can make such an appraisal?

    For equipment loans, an appraisal can be made by a supplier of similar equipment, auctioneer, or an expert in the field who is at arm's length from the borrower. For leasehold improvement loans, an appraisal can be made by a general construction contractor, a construction estimator, an engineer, an architect, construction consultant, a contractor specializing in that specific leasehold improvement (e.g., plumbing, bricklayer, interior designer).

  3. Subsection 10(5) stipulates that at least one payment of principal and interest must be made annually. Is the requirement met if only a payment of interest is made during the 1st year?

    While lenders may use their normal due diligence in setting out the frequency of payments under the loan document, this amendment does not change the requirement that at least one payment on the principal must be scheduled in the first year. 

  4. Subsection 10(3) states that the lender and borrower must sign a document setting out the terms of the renewal or changes to the loan document. Will a letter by the lender informing the borrower of the revised terms of the loan (e.g., amount, payments, interest), be in compliance with this provision?  

    Section 10 sets out the documents that are required by the lender and the borrower when the loan is made, amended or renewed. Many loan agreements have clauses that also stipulate conditions for renewing and amending the loan. In the Regulations, the word "loan agreement" refers to all of the documents that set out the terms of the agreement between the lender and the borrower to repay the loan (e.g., promissory note, credit agreement, etc). Therefore, all of the documents that provide evidence that the borrower and lender agreed to the terms for making, renewing and amending the loan will be taken into consideration in determining whether there is compliance with section 10.

  5. Is it now mandatory to have insurance premiums and the security charges included in the loan agreement?

    The previous subsections 13(2)(3) referred to expressing insurance premiums and security charges as part of the interest charged on a loan. These subsections have been amalgamated in order to clarify what happens when the loan document expresses these charges as part of the interest rate. In such a situation the loan document must clearly set out the percentage attributable to these charges. This can be contained in the promissory note or some other document to which the borrower has indicated agreement.

  6. Section 15 states that the asset included in primary security may be replaced by another asset of an equal or greater value at time of replacement. Will an appraisal be needed to confirm that the requirement is met?

    The Regulations do not stipulate that an appraisal is required. Where a secured asset is replaced, lenders should follow their normal due diligence in determining the value of the replaced asset. For example, the borrower is replacing an asset that was destroyed by fire; in such a situation, the value set out in the purchase invoice would constitute confirmation of the value of the asset at time of replacement. However, if the purchase is not at arm's length, the general principle outlined in section 9 of the Regulations would apply and an appraisal would then be required.

  7. Section 25.1 sets out non-compliance of the appraisal requirements.

    1. Does this section apply to appraisals for all classes of loans (real property, equipment, leasehold improvements)?
    2. Does this section apply where an appraiser is not available (e.g. in remote areas), or when the cost of the appraisal is prohibitive in relation to the amount of the loan?
    1. This non-compliance section applies only in the case of the appraisal requirements under section 9 of the Regulations for equipment and leasehold improvements. It does not apply to real property or immovables.
    2. This is not the intention of this non-compliance. It is intended to cover those situations where the lender, due to inadvertence, did not obtain, at the time the loan was approved, an appraisal of equipment or leasehold improvements in situations that require an appraisal under section 9 of the Regulations. The lender can obtain an appraisal at any time after the loan has been approved. Such documentation would be the same as what the lender should have obtained at the time the loan was approved. Please refer to Item 5.4.3, Section A of the Guidelines.

  8. Section 28.1 states that where the loan is longer than 10 years, the Minister will pay a claim only if the default occurred within the 10 year period. What is the date of default in such a situation, the date specified in notice of default or the date of last payment?

    In this situation, the date of default is defined in section 36 of the Regulations, that is, the date the borrower fails to comply with a material condition of a loan document (e.g. failure to make a monthly payment, non-payment of property taxes, etc.)

  9. A lender wants to increase an existing loan to the new maximum loan of $500,000 ($350,000 for equipment and leasehold improvements). Before registering the increase, the lender notices that the loan classes are wrong on the original registration acknowledgment. Can the original registration be modified?

    Any information on loan classes and/or the amounts originally submitted on the loan registration can be changed by notifying the CSBFP Directorate in writing. Failure to notify the Directorate of these changes could result in the ineligibility of part of the loan since the maximum loan amount may be non-compliant.

  10. Will the proposed amendments be applicable to existing loans already registered with the CSBF Program?

    Generally, the changes to the regulations will apply to existing loans with respect to a default that occurs after the Regulations come into force, that is, April 1, 2009. The changes do not apply to claims where default has occurred before April 1, 2009. If there are additional questions from lenders on a specific claim, their CSBFP portfolio managers should be contacted to ensure proper interpretation of the Act and the Regulations.

Further details on these Program changes are available on our website and in the Program Guidelines. We welcome your comments and feedback on any points raised in this Bulletin. Please feel free to contact us.

Canada Small Business Financing Program
Info Line: 1-866-959-1699
Fax: 613-952-0290
E-mail: csbfa-lfpec@ic.gc.ca
URL: www.ic.gc.ca/csbfa

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: