Loan approval – Key requirements checklist

Note:

This document does not represent the comprehensive details of the requirements of the Canada Small Business Financing Act and Regulations. Please consult the complete text of the Guidelines on the Canada Small Business Financing Program website.

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Loan Approval – Key Requirements Checklist
Requirement Description Guidelines

Due Diligence

Lenders must apply the same due diligence requirements as for a conventional loan for the same amount, conduct a credit checks on the borrower and/or shareholder(s), guarantor(s) and complete an assessment of the repayment ability of the borrower.

Item 1

Eligible Borrower

Is the borrower (corporation, sole proprietor, partnership) carrying on or about to carry on a small business?

Item 2.1

Eligible Small Business

Small business must be:

  • carried on in Canada
  • for-profit
  • with annual gross revenues not exceeding $5 million for loans approved before June 23, 2015 or $10 million for loans approved after June 22, 2015.

Item 2.2

Ineligible Borrowers:

Item 2.3

Maximum Loan Amount

  • The maximum loan amount is $500,000 for loans made after March 31, 2009 and before June 23, 2015 and $1 million for loans made after June 22, 2015 of which no more than $350,000 can be used to purchase leasehold improvements or equipment.
  • The maximum loan amount includes amounts outstanding to related borrowers. NOTE: If an individual owns several corporations, each corporation may be eligible for a loan. See Guidelines
  • Is the loan amount equal to or less than the cost of eligible assets?
Item 3

Loan Assets

Assets eligible for financing:

 
  • Real property
Item 4.1
  • Leasehold improvements
Item 4.2
  • Equipment (includes software, vehicles)
Item 4.3
  • Registration fee
Item 4.4

Common ineligible assets examples:

  • Share acquisitions
  • Working capital / Inventory
  • Goodwill
  • Franchise Fees
  • Assets already financed by a term loan

Item 5.2

Eligible assets purchased 180 days before loan approval date can be financed whereas eligible assets purchased more than 180 days before loan approval cannot be financed.

Item 5.1

Proof of Purchase and Payment

Proof of purchase and payment (invoices, cancelled cheques etc.) by the borrower have been obtained for loan assets. The invoice must contain a description of the asset.

Item 5.3

Appraisals Required

Appraisals have been obtained if:

  • Purchase of asset or service from person not at arm’s length
  • Purchase of a going concern (with an allocation of the price for each asset)
  • Purchase from a lender assets secured by conventional loan

Eligible amount of financing is the lesser of cost of purchasing and appraised value

Item 5.5

Terms of the Loan

Do the repayment terms, interest rate, charges and fees comply?:

  • Maximum interest rate (including the 1.25% administration fee):
    • floating rate: lender's prime rate plus 3%
    • fixed rate: lender's posted single family residential mortgage rate plus 3%
  • at least one payment of interest and one payment of principal must be scheduled to be made each year

Item 6

Security

Has security been taken in the financed assets?

  • Security must be a first charge or highest available rank
  • Security must be valid and enforceable. A security non-compliance section relates to loans defaulting after .
  • Personal guarantees must be unsecured and are optional

Item 7

Loan Registration

The loan must be registered within 3 months from date of the first disbursement of loan funds. This 3-month registration period can be extended to 6 months if the failure to register is inadvertent and the lender provides the reason(s) for the late registration.

Item 9

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