Presentation: Realizing on a Loan
- Loan Realization Process
- Sharing of Realization Proceeds and Costs
- Non-Compliance Remedies
- Submitting a Claim
- Establishing the Loss
- Principal Reasons for Adjustments & Rejects
- Reference Tools
Loan Realization Process
- A borrower is in Default when he fails to comply with a material condition of the loan.
- A notice of default may be forwarded to the Borrower asking him to comply to the loan agreement within a specified period of time.
- The formal Demand for Repayment indicates when the actual realization process starts.
Claim Submission Deadline
- 36 months after date specified in the notice of default.
- Before submitting a final claim, the lender must realize on the assets and the guarantees.
- Lender must take all necessary measures to minimize the loss:
- Assets of the business: 100%
- Corporate Guarantees: 100%
- Personal Unsecured Guarantees: 25%
- Personal liabilities: 25%
- If realization < costs. Abandon the assets.
- The lender may negotiate a compromise settlement in order to minimize the potential loss.
- Submitting a Claim for Loss: Regular, interim or incremental claim.
Sharing of Realization Proceeds and Costs
Applicable when realization proceeds and cost apply to several loans:
- If clearly identified, then apply to specific loan.
- If not clearly identified, then prorate according to the outstanding loan balance.
- If specific costs for guarantees and sole proprietor, then prorate base on lesser amount of the guarantee or principal outstanding on the loan.
- Payment of a claim is permitted, provided that the non-compliance is remedied as stipulated in the Regulations
- Non-compliance must be inadvertent
- Minister's liability must not be affected by the non-compliance
Submitting a Claim
A claim can be submitted if:
- Borrower is in default
- Notice of default was sent
- Lender realized on security
- 36 month deadline (or approved extension) not surpassed
Claim Submission Deadline:
- 36 months after date specified in the notice of default or, if no notice of default, period begins on day after final regular payment is received from borrower
- Lender can request an extension of the claim submission date
Submitting an Interim Claim:
- Expedite payment
- Allow lender sufficient time for compromise settlements
- Allow lenders to fully realize on guarantees and suretyship
- Realization of assets completed
- Holdback for the personal guarantee or personal obligation
- Lender can request an extension of the claim finalization date
When submitting a claim, the lender must provide the following documents
- Completed claim for loss form
- Copy of the initial loan registration document
- Loan authorization document
- Promissory note/Loan agreement (Credit bureau/Ability to repay confirmation)
- Loan statement
- Project cost (proof of purchase and payments)
- Security documents
- Personal and corporate guarantees or Suretyships
- Justification supporting realization actions taken or not taken (i.e. appraisal, personal net worth statements, etc)
- Realization of security
- Realization of guarantees
- Realization costs
- Other documents (incorporation papers of the company, lease, franchise agreement, etc.)
Establishing the Loss
In case of default by a borrower, Industry Canada will reimburse a maximum of 85% of the lender's eligible loss up to the maximum Minister's Liability towards the lender.
Unpaid principal amount of the CSBF
- Less: realization, insurance proceeds, taxes reimbursed
- Plus: legal costs and fees, interest
Minister's Liability Ceiling
- 90% of 1st $250K
- 50% of following $250K
- 12% on balance (for loans made after March 31, 2009)
- 10% on balance (for loans made prior to April 1, 2009)
Subrogation and post-claim proceeds
- Once a claim is final, the Minister is subrogated to all the rights of the lender up to the amount paid.
- When a final claim is paid, no further collection measures are to be initiated/pursued by a lender. However, a lender can execute judgments obtained before the final claim was submitted. The lender must forward to the CSBFP Directorate 85% of any money it receives after the payment of the final claim.
Principal Reasons for Adjustments & Rejects
- Insufficient evidence of purchase or proof of payment
- Sharing of realization proceeds or costs
- Costs claimed twice
- Ineligible items added to loan (property taxes, nsf charges)
- No evidence of purchase or proof of payment
- An independent appraisal was required and not obtained
- Security requirements not met (V&E, mortgages)
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