Small Business Loans Regulations, 1993 (SOR/93-169)

Security

• 16 (1) Subject to subsection (2) a lender shall, at the time of making a loan of a prescribed class other than a fees loan, take, as security for the repayment of the loan, a mortgage, conditional sales contract, pledge, debenture, general security agreement or other similar security on the assets of the business enterprise that will be financed by the loan.

• (2) Where the loan is a land or premises loan and the borrower is a tenant, the lender may take, as security for the repayment of the loan, security on any other assets of the business enterprise.

• (3) Where there is existing security on the assets to be secured, the security referred to in subsections (1) and (2) shall be a fixed charge of the highest available rank.

• (4) Where there is no existing security on the assets to be secured, the security referred to in subsections (1) or (2) shall be a first fixed charge, or a fixed charge equal in priority to other sources of financing.

• (5) A lender, in addition to the security referred to in subsection (1), (2) or (6), may take unsecured personal guarantees for an amount that in the aggregate does not exceed 25 per cent of the amount of a loan.

• (6) A lender, in addition to the security referred to in subsection (1), (2) or (5), may take corporate guarantees.

• (7) A lender may substitute any security taken in accordance with subsection (1), (2), (5) or (6) for any other security referred to in any of those subsections and may substitute for assets secured thereby any other assets if the value of the substituted assets is not less than the value of the assets that are released from the security.

• (8) In an equipment loan, any assets secured by the lender may be released by the lender if

  • (a) the loan is not in default;

  • (b) two years have elapsed since the final disbursement of the loan; and

  • (c) the outstanding balance of the loan has been reduced by the extent of the original cost of the assets of the business enterprise that are to be released.

• (9) In a land or premises loan, any assets secured by the lender under subsection (1), (2) or (6) may be released if the assets are expropriated, provided that the proceeds of the expropriation are applied to the loan.

• (10) A lender may release an unsecured personal guarantee taken in accordance with subsection (5) if the loan is in good standing and the borrower has repaid to the lender at least 50 per cent of the principal amount of the loan.

Default

17 Subject to subsection 13(1), where a borrower is in default in respect of any payment due on a loan of a prescribed class, the balance outstanding on the loan shall be due and payable.

Procedure on Default

• 18 (1) Where the balance outstanding on a loan of a prescribed class is due and payable pursuant to section 17, the lender shall demand repayment of the balance owing by the borrower within such period as specified in the demand.

• (2) Where the repayment demanded under section (1) is not made within the period specified in the demand, the lender shall take all of the following applicable steps;

  • (a) collect the principal and interest outstanding on the loan;

  • (b) obtain security on any assets not secured by any security described in subsection 16(1) or (2);

  • (c) subject to subsection (3), realize upon any security referred to in section 16; and

  • (d) effect a compromise settlement with the borrower or with another person on the borrower’s behalf.

• (3) Where the borrower is a partnership or a sole proprietor, the lender may realize upon the assets, other than the assets of the business enterprise, of the partners or sole proprietor in an amount not exceeding in aggregate 25 per cent of the amount of the loan.

Procedure for Claims

• 19 (1) A lender may not submit a claim to the Minister for loss sustained as a result of a loan of a prescribed class before taking all of the applicable steps described in subsection 18(2).

• (2) Subject to subsection (3), the lender shall submit any claim for loss within a period of 36 months following the day on which default in repayment of the loan occurred.

• (3) The Minister may, at the lender’s request, extend the period referred to in subsection (2) by not more than six months.

• (4) A claim for loss shall be certified by a responsible officer of the lender and shall be accompanied by

  • (a) documentation substantiating

    • (i) the cost of the equipment, premises or land in respect of which the loan was made, and

    • (ii) the amount of the loan advanced by the lender in accordance with the Act; and

  • (b) the loan record.

• (5) A loss sustained by the lender in respect of a loan of a prescribed class shall be calculated by determining the aggregate of the following and deducting from that aggregate any proceeds realized from the steps taken that are referred to in subsection 18(2):

  • (a) the principal outstanding on the loan on the day on which the loan became due and payable;

  • (b) interest accrued on the principal outstanding on the loan during the period beginning on the day after the day on which the last instalment was made and ending on the day before the day on which the loan became due and payable;

  • (c) for loans with a rate of interest calculated in accordance with paragraph 14(a), interest on the principal outstanding on the loan during the period beginning on the day on which the loan became due and payable and ending on the earlier of the day on which the Minister compensates the lender and the last day of the thirty-sixth month following the day on which the loan became due and payable

    • (i) in respect of the first 12 months, at the rate of interest set out in the loan agreement, and

    • (ii) in respect of the 24 months following the 12 months referred to in subparagraph (i), at a rate of interest equal to one-half the rate of interest referred to in subparagraph (i);

  • (d) for loans with a rate of interest calculated in accordance with paragraph 14(b), interest on the principal outstanding on the loan during the period beginning on the day on which the loan became due and payable and ending on the earlier of the day on which the Minister compensates the lender and the last day of the thirty-sixth month following the day on which the loan became due and payable

    • (i) in respect of the first 12 months, at the rate of interest set out in the loan agreement, and

    • (ii) in respect of the 24 months following the 12 months referred to in subparagraph (i), at a rate of interest equal to one-half the rate of interest referred to in subparagraph (i);

  • (e) uncollected taxed costs for, or incidental to, any legal proceedings in respect of the loan;

  • (f) legal fees and disbursements, other than the costs referred to in paragraph (e), incurred by the lender for services rendered to the lender by persons other than employees of the lender, for the purpose of collecting, or attempting to collect, the loan from the borrower or the guarantor, as the case may be; and

  • (g) other costs incurred by the lender for the purpose of collecting, or attempting to collect, the loan from the borrower or the guarantor, as the case may be, other than costs incurred by the lender or its employees in the administration of the loan prior to default.

Reports to Minister

20 Any lender who has made a loan of a prescribed class shall provide, before June 1 of any year, a report to the Minister on the total amount of the loans of all prescribed classes unpaid on March 31 of the year.

Subrogation

21 Where the Minister compensates a lender for all or any part of the loss sustained by the lender as a result of a loan of a prescribed class, Her Majesty is subrogated to the rights of the lender in respect of that loan.

Registry

22 For the purposes of these Regulations, the registry established by the Minister pursuant to the Small Businesses Loans Regulations, made by Order in Council P.C. 1960-1764 of December 22, 1960, in order to provide for the recording of loans made under the Act, is hereby continued.

Loan Registration Request and Required Fees

• 23 (1) The lender shall within three months following the day on which the initial disbursement of a loan of a prescribed class is advanced in accordance with the terms of the loan, request, in writing, that the Minister register the loan.

• (2) Where the Minister is unable to register a loan of a prescribed class because the lender has inadvertently failed to request registration within the period set out in subsection (1), or to pay the fee required by paragraph 3(4)(b) of the Act, the Minister may, if the borrower is not in default, extend the period for registration to a day not more than one year after the day on which the initial disbursement was advanced.

23.1 For the purposes of paragraph 3(4)(b) of the Act, the registration fee in respect of a loan, other than a fees loan, made after December 31, 1995 is two per cent of the amount of the loan and is payable at the time the loan is submitted for registration.

23.2 For the purposes of paragraph 3(4)(c) of the Act, the annual administration fee in respect of a loan made after December 31, 1995 is 1.25 per cent of the yearly average of the end-of-month loan balances and is payable at the time of filing of the report referred to in section 20.

Acquisition of Loans by Another Lender

• 24 (1) Where a lender who has made loans of a prescribed class discontinues its lending business and sells all loans of the prescribed class outstanding on its books to another lender who is the successor lender, or amalgamates with one or more other lenders so as to form a new lender, the Minister’s liability under the Act continues in favour of that successor lender or the new lender, and on the day of the sale or the amalgamation

  • (a) the loans made under these Regulations, and the Small Businesses Loans Regulations by the selling lender and successor lender, or by the amalgamating lenders, if previously registered by the Minister pursuant to section 23 of the Small Businesses Loans Regulations or section 23 of these Regulations are consolidated and transferred to the successor lender or the new lender; and

  • (b) all claims for loss already paid by the Minister to the selling lender and the successor lender, or to the amalgamating lenders, under these Regulations and the Small Businesses Loans Regulations are consolidated and are losses paid to the successor lender or the new lender.

• (2) A lender may, at the request of the borrower, transfer to another lender a land, premises or equipment loan and its related fees loan, which when taken with all other loans transferred to or by each of the lenders do not exceed respectively in the aggregate the greater of 20 loans and one per cent of the number of loans outstanding for each lender as of the last preceding March 31.

• (3) A lender who acquires a loan under subsection (2) shall, within three months after the acquisition of the loan, notify the Minister of the acquisition and of the amount outstanding on the loan.

• (4) The liability of the Minister under the Act continues to the lender who acquires the loan.