Canada Small Business Financing Program

Frequently Asked Questions

General

Where lenders consider that a given situation is not clearly covered by the Act, Regulations, the Guidelines or these FAQs, they should seek clarification and direction from their head office, regional office or their central office. Where appropriate, and at the written request of the lender's head office, regional office or central office, a ruling may be obtained from the Administration.

1. What are the responsibilities of the lender under the CSBFA program?
2. How is the registration deadline calculated?
3. Can an extension be granted to a lender for submitting a loan for registration beyond the 3-month deadline?
4. Can a lender submit the registration form even if it has not yet obtained the borrower's business (GST) number?
5. Can the registration fee be financed under the CSBFA?
6. Can a lender get a refund of the 2% registration fees?
7. Can a lender request an increase in the amount of the loan already registered under the CSBFA?
8. Before submitting a claim to the Minister, does the lender have to realize on the security taken on the assets financed?
9. Does the lender have to obtain judgement against a borrower/guarantor when in the process of realizing on the security of a CSBF loan?
10. What are some of the common errors made when making a CSBF loan that would result in invalidating a claim?
11. What are some of the common errors made when making and administrating a CSBF loan that would result in an adjustment to a claim?
12. Are farming activities eligible for CSBF loans?
13. Are foreign citizens eligible for a CSBF loan?
14. What is the difference between related borrowers and a borrower who is not at arm's length?
15. When an appraisal is required under the program regulations, is it possible to use someone who is not an appraiser member of any professional association?
16. Can a borrower be in default of a CSBF loan even though the payment of interest and principal are up to date?
17. Can a CSBF loan be transferred to another lender?

18. What is the time delay to submit the request to transfer a loan from another lender and what form do we use?

1. What are the responsibilities of the lender under the CSBFA program?

   • The lender is responsible for making a loan under the CSBFA , administering it and realizing on all security taken to guaranty the loan.
   • The lender should take the same care and the same procedures for making a CSBF loan as he would for his conventional loans.

   • After completing all the realization procedures to minimize the loss, the lender may submit a claim to the Minister for the net loss incurred.

   The Minister will pay 85% of the loss, as long as the lender meets all the legislative requirements. The Minister is accountable to Parliament to ensure full compliance to the CSBF Act and Regulations.

   References: Act: 4(1)a), 5(1)
   Regulations: 37, 38
   Guidelines: B & C

Registration

2. How is the registration deadline calculated?

   The 3-month registration deadline is calculated from the date of the first disbursement of the loan funds.

   References: Regulations: 2(1)
   Guidelines: B. item 1

3. Can an extension be granted to a lender for submitting a loan for registration beyond the 3-month deadline?

   Yes. An additional 3 months can be authorized if the lender has missed the deadline to present the registration form. The lender must submit a written explanation for the inadvertence.

   References: Regulations: 2(2)
   Guidelines: B. item 1.2

4. Can a lender submit the registration form even if it has not yet obtained the borrower's business (GST) number?

   Yes. A lender can submit its registration form with a “To Follow” in Box # 6. The loan will be registered without it. The business (GST) number should be faxed to the CSBF Directorate once the lender receives it.

5. Can the registration fee be financed under the CSBFA?

   The registration fee is a prescribed class under the Canada Small Business Financing Regulations and can, therefore, be financed under the CSBFA.

   References: Regulations: 5(1)(d)
   Guidelines: A. item 4.4

6. Can a lender get a refund of the 2% registration fees?

   Yes. A partial refund of the registration fee may be authorized if the lender has disbursed less than the full amount of the loan registered. A full refund of the registration fee may be authorized if the lender determines the loan to be ineligible. However, the request for refund of registration fees must be submitted by the lender within one year from the date the loan is disbursed.

   References: Regulations: 4(10)
   Guidelines: B. item 2.3

7. Can a lender request an increase in the amount of the loan already registered under the CSBFA?

   Yes. The lender does not have to submit a new registration form. The request for the increase must be submitted in writing within one year after the date of the first disbursement of the initial loan. The lender must:

   1. detail the new loan amount by class of loan,
   2. attest that the increase relates to the same project,
   3. confirm that the legal status of the borrower remains the same as that of the initial loan,
   4. confirm that the loan is in good standing and all other terms and conditions of the Act and Regulations are met,
   5. amend the registered security to reflect the increased amount of the loan,
   6. certify that there are no modifications to the “Borrower's Acknowledgement and Consent” Section of the registration form originally submitted and

   7. submit a cheque for the 2% registration fee related to the increase.

   References: Guidelines: B. item 1.1

Claims

8. Before submitting a claim to the Minister, does the lender have to realize on the security taken on the assets financed?

   Yes, when it is reasonable to expect that the proceeds from realization would exceed the costs.

   • The lender should apply the same business practices as it would with a conventional loan and take proceedings (legal or other) only when it is cost effective to do so.

   • If the lender determines that the secured assets should be abandoned, detailed documentation is required to support the decision (i.e. appraisal, documentation of priority claims by Canada Revenue Agency, estimate of realization costs or legal costs, etc.).

   Reference: Regulations: 37
   Guidelines: C, item 2

9. Does the lender have to obtain judgement against a borrower/guarantor when in the process of realizing on the security of a CSBF loan?

   It is the responsibility of the lender to determine if a judgement is required for a CSBF loan as it would do for a conventional loan.

   However, before incurring the legal costs to obtain judgement, the lender should do the necessary investigation (i.e. investigation report, updated credit bureau, financial statements, declaration of worth by the borrower/guarantor under oath, etc.) to determine if the procedure is cost effective and would reduce the Minister's loss.

   Reference: Regulations: 37
   Guidelines: C, item 2

10. What are some of the common errors made when making a CSBF loan that would result in invalidating a claim?

    The most common errors are:

    • a loan to a non-eligible borrower (e.g. farming under Major group 01),
    • borrower has annual gross revenues of more than $5,000,000 at the time the loan was approved
    • ineligible purpose (e.g. financing inventory or goodwill),
    • independent appraisal required for all assets to be financed not obtained when approving a loan,
    • all assets were purchased more than 180 days prior to loan approval date,

    • claim or request for extension of claim not submitted within the required time frame.

    References: Act: 2
    Regulations: 5, 6, 9
    Guidelines: A, items 1 to 5

11. What are some of the common errors made when making and administrating a CSBF loan that would result in an adjustment to a claim?

    The most common errors are:

    • Evidence of assets purchased or proof of payment to demonstrate that the requirements have been met, is incomplete,
    • Some assets purchased more than 180 days before loan approval date,
    • Loan exceeds prescribed percentage of asset cost (e.g. financed 100% instead of 90%),
    • independent appraisal required for some assets to be financed not obtained when approving a loan,
    • Realization on the personal guarantees exceed the maximum of 25%,
    • Ineligible fee charged and borrower has not been reimbursed before the claim was submitted,

    • Interest exceeds maximum rate and borrower has not been reimbursed before the claim was submitted.

    • References: Regulations: 23 to 28
      Guidelines: C, item 4

Eligibility

12. Are farming activities eligible for CSBF loans?

    Generally no.

    • Assets purchased for farming activities that qualify under the MAJOR GROUP 01* are not eligible (e.g. sale of livestock, animal specialties, field crops, fruit and vegetable, horticultural specialties)

    • However Service Industries Incidental to farming in GROUP 02 (i.e. veterinary services, farm breeding, soil preparation, planting and cultivating services) would be eligible under the program.

    • For example, if a farmer who is qualified under GROUP 01 purchases snow plowing equipment for snow removal contracts in the winter, this purchase would be eligible.

    • However, if the same farmer buys harvesting equipment for his own use, that would not be eligible.

    • If harvesting equipment is purchased by a borrower to provide harvesting services to farmers, this purchase would be eligible, since it falls under the GROUP 02.

    References: *1980 Standard Industrial Classification of Statistics Canada
    Act: 2
    Guidelines: A, item 1

13. Are foreign citizens eligible for a CSBF loan?

    Yes, if:

    • has a place of business in Canada,
    • the small business operates in Canada and

    • the assets purchased are predominately used in Canada, the small business is eligible for financing under the program.

    • There are no restrictions as to the ownership of the business.

    References: Act: 2
    Guidelines: A, item 1

Other

14. What is the difference between related borrowers and a borrower who is not at arm's length?

    1. Related Borrowers:

       The notion of related borrowers is to limit to $250,000 total loans made under the CSBFA and the SBLA, regardless of blood relationship, marriage or adoption.
       
       References: Regulations: 3(2) to 3(6)
       Guidelines: 2

    2. Borrower Not at Arm's Length:

       The purpose of the definition of a borrower not at arm's length (as defined by section 251 of the Income Tax Act) is to:

       1. require an independent appraisal where the borrower purchases assets from a vendor that is related to it

       2. and where the borrower wishes to finance leasehold improvements and he is related to the landlord, the lender must be secured by a mortgage on the property improved.

       References: Regulations: 9(1)a), 14(6)
       Guidelines: A, item 5.3 and item 7.3, E

15. When an appraisal is required under the program regulations, is it possible to use someone who is not an appraiser member of any professional association?

    The services of an appraiser member of any professional association must be used for the purchase of real estate, improvements to real estate and leasehold improvements, there are no exceptions.

    For equipment loans where there is no professional association of appraisers, an appraisal can be performed by a qualified person (e.g. supplier of similar equipment, auctioneer or expert in the field).

    Reference: Regulations: 9
    Guidelines: A, item 5.3

16. Can a borrower be in default of a CSBF loan even though the payment of interest and principal are up to date?

    Yes, if the borrower fails to comply with a material condition of the CSBF loan agreement including amendments (e.g. revision of repayment terms), deed of hypothec or any other document signed by the borrower and the lender.

    It is not limited to non payment of interest and principal. For example, it can be for non-payment of property taxes, insurance premiums, sale of assets without the lender's consent, etc., if those conditions were agreed upon.

    Reference: Regulations: 36
    Guidelines: C, item 1

17. Can a CSBF loan be transferred to another lender?

    Yes. At the request of the borrower, a CSBF loan may be transferred to another lender. Since the transfer of loans between lenders impacts on the Minister's liability, it is possible that a request to transfer a loan could be refused if the Minister's remaining liability were to become insufficient following the transfer. Therefore, it is important for the acquiring lender to request the transfer of a loan before committing any funds in favour of the original lender.

    References: Regulations: Sec. 29; Sec. 30
    Guidelines: B. Item 9

18. What is the time delay to submit the request to transfer a loan from another lender and what form do we use?

    There is no time limit to submit the request. The form “Request for the Transfer of a Loan between Lenders”, form IC 2707E is available from our web site. The acquiring lender must complete the transfer form, sign it and have it also signed by the original lending institutions as well as the borrower.