Canada Small Business Financing Regulations (SOR/99-141)

Regulations are current to 2017-10-13 and last amended on 2016-02-19. Previous Versions

Fees

  •  (1) The registration fee in respect of a loan referred to in any of paragraphs 5(1)(a) to (c) is 2% of the amount of the loan.

  • (2) The annual administration fee for a loan for a year is the amount calculated at the annual rate of 1.25% applied to the end-of-month balances of the loan during the year, and is payable quarterly within two months after the end of each quarter.

  • (3) to (6) [Repealed, SOR/2009-102, s. 4]

  • (7) With each payment made under subsection (2), the lender must submit a statement that substantiates the basis on which the payment was calculated.

  • (8) Notwithstanding subsection (7), if the lender is unable to provide the statements required by that subsection in respect of a year, the Minister must notify the lender

    • (a) that for that year, the lender may make the payments under subsection (2), except the payment for the last quarter of the year, on the basis of estimates of the amounts payable; and

    • (b) that the lender must submit for that year a statement under subsection (9) rather than the statements required by subsection (7).

  • (9) On or before June 1 following a year in respect of which a lender makes payments under subsection (8), the lender must pay any deficiency for the year and provide a statement that indicates the basis on which the amount of the annual administration fee for the year was calculated.

  • (10) On application by a lender, made within one year after the day on which the loan is made, the Minister must

    • (a) where the lender has disbursed less than the full amount of the loan registered, refund to the lender that portion of the registration fee that is attributable to the portion of the loan that was not disbursed and subtract the amount of the undisbursed portion from the amount of the loan registered; or

    • (b) where the lender determines that the loan is not in compliance with the requirements of the Act and these Regulations, refund to the lender the registration fee and the annual administration fee and delete the entire amount of the loan registered.

  • SOR/2009-102, s. 4;
  • SOR/2014-7, s. 4.

Loan Classes and Conditions

  •  (1) A loan must fall within one of the following prescribed classes:

    • (a) loans to finance the purchase or improvement of real property or immovables of which the borrower is or will become the owner, if the purchase or improvement is necessary for the operation of the borrower’s small business;

    • (b) loans to finance the purchase of leasehold improvements to real property or immovables of which the borrower is or will become the tenant or the improvement of such real property or immovables, if the purchase or improvement is necessary for the operation of the borrower’s small business;

    • (c) loans to finance the purchase or improvement of equipment necessary for the operation of the borrower’s small business; or

    • (d) loans to finance the payment by the borrower of registration fees payable in respect of a loan referred to in any of paragraphs (a) to (c).

  • (2) A loan referred to in paragraph (1)(a) may not be made for the purchase of real property or immovables unless, at the time the loan is approved by the lender,

    • (a) at least 50% of the area of the real property or immovables is used for the operation of the small business or is intended to be so used within 90 days after the final disbursement under the loan agreement; and

    • (b) that portion of the area is not intended to be used within three years after the day on which the loan is made for

      • (i) resale, or

      • (ii) leasing or subleasing, except in the case of a small business in the health care industry, hospitality industry or mini-storage industry.

  • (3) A loan referred to in paragraph (1)(a) for the purchase of real property or immovables may include the cost of decontamination of real property or immovables if

    • (a) the decontamination is required under a federal or provincial law, and the decontamination plan is disclosed to the lender on or before the day on which the loan is made; and

    • (b) the loan is secured by a first mortgage on the real property or immovables.

  • (4) A loan referred to in paragraph (1)(b) may not be made if the real property or immovables are intended to be used within three years after the day on which the loan is made for subleasing except in the case of a small business in the health care industry, hospitality industry or mini-storage industry.

  • (5) The cost of purchasing or improving the equipment, real property, immovables or leasehold improvements financed by a loan referred to in any of paragraphs (1)(a) to (c) must not include the cost of labour provided by the borrower or the borrower’s employees but may include the cost of labour provided by any subcontractor.

  • (6) A loan referred to in any of paragraphs (1)(a) to (c) may not be used to finance the payment of any incidental costs other than non-refundable taxes and customs duties.

  • SOR/2009-102, ss. 5, 25(F);
  • SOR/2014-7, ss. 5, 28(F).
  •  (1) Any loan referred to in paragraphs 5(1)(a) to (d) may not be made to finance an expenditure or commitment that arose more than 180 days before the day on which the loan is approved or that was previously financed by a term loan.

  • (2) The maximum loan term is 15 years for a loan referred to in paragraph 5(1)(a) and 10 years for a loan referred to in paragraph 5(1)(b) or (c), beginning on the day on which the first payment of principal and interest is due.

  • SOR/2009-102, s. 6;
  • SOR/2016-18, s. 2.

Designation of Lenders

 The Minister is authorized to designate organizations as lenders.

Prescribed Condition

 For the purpose of subparagraph (a)(ii) of the definition “lender” in section 2 of the Act, the member shall provide the Minister with the following:

  • (a) the number assigned to them by the Canadian Payments Association; and

  • (b) their external auditor’s certificate stating that the member has been a commercial lender for the past five years.

  • SOR/2001-490, s. 1;
  • SOR/2009-102, s. 7.

Due Diligence Requirements

 In making and administering a loan, the lender must apply the same procedures as those that would be applied in respect of a conventional loan in the same amount, including, before making the loan,

  • (a) obtaining credit references or conducting a credit check on the borrower and any persons who are legally or financially responsible for the borrower; and

  • (b) completing an assessment of the repayment ability of the borrower, taking into account all other financial obligations of the borrower.

  • SOR/2009-102, s. 8;
  • SOR/2014-7, s. 6(F).

Appraisal

  •  (1) The borrower must, before the loan is approved, provide to the lender from, subject to subsection (2), an appraiser who is a member of any professional association that is recognized under a federal or provincial law and who is at arm’s length from the borrower, and, in the case of assets described in paragraph (c), from the lender, an appraisal, made at any time within 180 days before the loan is approved, of the value of the assets or services intended to improve the assets, as the case may be, if a borrower uses, or intends to use, all or part of a loan to purchase

    • (a) assets, or services intended to improve the assets, from a person who is not at arm’s length from the borrower;

    • (b) all or substantially all of the assets of a going concern; or

    • (c) assets from the lender or its representative that, at the time of purchase, are being or had been used to secure a conventional loan of the lender.

  • (2) In the case of a loan to purchase equipment or leasehold improvements, if there is no professional association referred to in subsection (1) whose members are qualified to conduct such an appraisal, the appraisal must be made by an appraiser who is at arm’s length from the borrower and, in the case of equipment or leasehold improvements that are assets referred to in paragraph (1)(c), the lender.

  • (3) [Repealed, SOR/2014-7, s. 7]

  • (4) If an appraisal is required, the amount of the loan must be based on the lesser of

    • (a) the cost of purchasing or improving the asset or both, and

    • (b) the appraised value of the asset or improved asset.

  • SOR/2009-102, s. 9;
  • SOR/2014-7, s. 7.

Terms of the Loan

  •  (1) On or before the day on which a loan is made, the lender and borrower must sign a document that sets out the principal amount of the loan, the rate of interest payable in respect of the loan, the repayment terms, the frequency of payments of principal and interest and the day on which the first payment of principal and interest is due.

  • (2) The lender and the borrower may, at any time, agree to amend the terms of the loan or, at the end of a loan term, to renew the loan, to an aggregate maximum term of 15 years for a loan referred to in paragraph 5(1)(a) or 10 years for a loan referred to in paragraph 5(1)(b) or (c), beginning on the day on which the first payment of principal and interest is due.

  • (3) On or before the day on which a loan is renewed or its terms are amended, the lender and borrower must sign a document that sets out the terms of the renewal or amendment.

  • (4) For greater certainty, the terms described in subsections (1) and (3) may be set out in more than one document, as long as each document is signed by the lender and the borrower.

  • (5) The repayment terms must provide that

    • (a) the loan is payable by instalments;

    • (b) at least one instalment of principal and interest is payable annually; and

    • (c) the first instalment of principal and interest is payable no later than one year after the day on which the loan is made.

  • SOR/2009-102, s. 10;
  • SOR/2014-7, ss. 8(F), 28(F);
  • SOR/2016-18, s. 3.
 
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