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

Additional Amounts Payable by Borrowers

• 13 (1) A lender may require the borrower to pay to the lender, in addition to the registration fee referred to in section 11 of the Act,

  • (a) any charge that would be charged by the lender for taking security in respect of a conventional loan of the same amount;

  • (b) any premium under a life or disability insurance policy that provides that a benefit is or may become payable to the lender, if the lender pays the premium under the loan agreement;

  • (c) any charge for the conversion of a conventional fixed rate loan to a conventional floating rate loan of the same amount, or a conventional floating rate loan to a conventional fixed rate loan of the same amount, or any charge for the prepayment of all or part of a loan that would be charged by the lender in respect of a conventional loan of the same amount; and

  • (d) in the case of a loan made after March 31, 2014, any other charge that would be charged by the lender in respect of a conventional loan of the same amount.

• (2) If a charge referred to in paragraph (1)(a) or a premium referred to in paragraph (1)(b) is expressed as a percentage of the outstanding amount of the loan, the charge or premium must not be combined with the rate of interest payable in respect of the loan unless the percentage that is attributable to the charge or premium is clearly set out in the loan agreement.

• (3) [Repealed, SOR/2009-102, s. 13]

Security

Primary Security

• 14 (1) A lender must, when making a loan referred to in paragraph 5(1)(a) or (c), take valid and enforceable first-ranking security in the assets of the small business whose purchase or improvement is to be financed by the loan.

• (2) If the purchase or improvement of the assets of the small business is to be financed by a loan and another source of financing, the security taken by the lender in those assets must be equal in rank to that taken in those assets in relation to the other source of financing.

• (3) In the case of a loan referred to in paragraph 5(1)(b), (d) or (e), or a loan referred to in paragraph 5(1)(c) for the financing of computer software, the lender must take security in any assets of the small business in respect of which the loan is made.

• (4) If, within 30 days before or after the day on which a loan is made or opened, the lender makes or opens one or more conventional loans to the same borrower to finance a purchase or improvement that would be eligible for a loan, the lender

  • (a) must, in addition to any security otherwise required by this section to be taken, take security in the same assets and equal in rank to that taken to secure the conventional loan or loans; and

  • (b) may take security to secure the conventional loan or loans on the same assets and equal in rank to that taken to secure the loan.

• (5) If there is existing security in an asset whose purchase or improvement is to be financed by a loan, the security taken by the lender in that asset must be of the highest available rank, but if the existing security is the result of the application of a provision respecting subsequently acquired property, the lender must obtain all necessary postponements to ensure that the security in the asset is a first ranking charge.

• (6) [Repealed, SOR/2016-18, s. 4]

Substitution of Assets

15 Primary security must not be replaced by a different type of security, but an asset that is the object of a primary security may be substituted at any time for another asset of the small business in respect of which a loan is made that is of equal or greater value at the time of replacement.

Release of Primary Security

• 16 (1) The lender may, in respect of a loan, release primary security in an asset if

  • (a) the loan is in good standing; and

  • (b) the outstanding amount of the loan has been reduced by the amount of the original cost of the asset that is to be released.

• (2) The lender may also release primary security in an asset at any time if

  • (a) the asset is sold by the borrower to a person at arm’s length from the borrower and all of the proceeds of sale are applied to reduce the outstanding amount of the loan; or

  • (b) the asset is sold by the borrower to a person not at arm’s length from the borrower and

    • (i) the borrower provides to the lender an appraisal of the value of the asset made at any time within 180 days before the date of the sale by an appraiser who at that time met the professional qualifications and arm’s length requirements of subsection 9(1) or (2), as the case may be, and

    • (ii) the outstanding amount of the loan is reduced by the greater of the proceeds of the sale and the appraised value of the asset.

Additional Security

17 A lender, in addition to any primary security required by section 14 to be taken, may take additional security in any other assets of the small business in respect of which the loan is made.

Release and Substitution of Additional Security

18 The lender may release any additional security at any time if the loan is in good standing.

Guarantees and Suretyships

Personal Guarantees and Suretyships

• 19 (1) A lender, in addition to the primary security referred to in section 14, may take one or more unsecured personal guarantees or suretyships for an amount of not more than the aggregate of

  • (a) in the case of a loan made before April 1, 2014, 25% of the original amount of the loan, and in the case of a loan made after March 31, 2014, the original amount of the loan,

  • (b) interest on any judgment against the guarantor or surety,

  • (c) taxed costs for, or incidental to, the legal proceedings against the guarantor or surety, and

  • (d) legal fees and disbursements — other than costs referred to in paragraph (c) — and other costs incurred by the lender for services rendered to it by persons other than its employees for the purpose of the legal proceedings against the guarantor or surety.

• (2) If a lender takes more than one personal guarantee or suretyship, the guarantees or suretyships must state that the aggregate liability of the guarantors or sureties may not exceed the aggregate amount referred to in subsection (1).

Corporate Guarantees and Suretyships

20 A lender, in addition to the primary security referred to in section 14, may take one or more secured or unsecured corporate guarantees or suretyships.

Release of Guarantors and Sureties

21 A lender may release a guarantor or surety from a guarantee or suretyship only if the loan is in good standing.

Substitution of Guarantees and Suretyships

22 A borrower may, at any time with the consent of the lender, replace a guarantee or suretyship with security in any assets of the small business in respect of which the loan is made or with another guarantee or suretyship, and the value of the replacement security, guarantee or suretyship must be equal to or greater than the value of the original one.

Non-Compliance

23 Notwithstanding that a lender has not paid the annual administration fee in accordance with section 4, the Minister must pay to the lender the amount of any loss, calculated in accordance with subsection 38(7), sustained, despite subsection 9(2) of the Act, in respect of all loans made by the lender if

• (a) the non-compliance was inadvertent; and

• (b) the annual administration fee is paid within 90 days after the day on which notice of the non-compliance is received at the head office of the lender.

24 Notwithstanding that a loan was made contrary to a prohibition set out in any of subsections 5(2) to (4) and (6), the Minister must pay to the lender the amount of any loss, calculated in accordance with subsection 38(7), sustained in respect of the loan if

• (a) the non-compliance was inadvertent; and

• (b) the non-compliance was due to inaccurate information having been provided by the borrower to the lender.

25 If the non-compliance described in any of the following paragraphs was inadvertent, the Minister must pay the lender the amount of any loss, calculated in accordance with subsection 38(7), on the portion of the amount of principal outstanding on the loan to which the non-compliance does not relate:

• (a) the loan was made to finance a purchase or improvement that does not fall within the scope of a class of loan referred to in subsection 5(1) or that is not permitted under subsection 6(1);

• (b) the conditions set out in subsection 5(3) were not satisfied in respect of a loan that included the cost of decontamination of real property or immovables;

• (c) [Repealed, SOR/2009-102, s. 15]

• (d) the requirements with respect to security set out in these Regulations were not satisfied in respect of the loan; or

• (e) the lender has not provided all of the documentation described in subsection 38(4) in respect of a claim for the loss.

• 25.1 (1) Despite the fact that the requirements with respect to appraisals set out in section 9 or subsection 16(2) have not been satisfied in respect of a loan, the Minister must pay the lender the amount of any loss, calculated in accordance with subsection 38(7), sustained in respect of the loan if

  • (a) the non-compliance was inadvertent; and

  • (b) the lender provides the Minister with documentation that substantiates the value of the assets or services intended to improve the assets, as the case may be, during the period of 365 days before the loan was disbursed by the lender or on the day the loan was disbursed.

• (2) Subsection (1) does not apply to appraisals of real property or immovables.

• (3) Despite the fact that the lender has not provided the documentation referred to in paragraph (1)(b), the Minister must pay the lender the amount of any loss, calculated in accordance with subsection 38(7), on the portion of the amount of principal outstanding on the loan to which the non-compliance does not relate.

25.2 Despite the fact that a loan agreement does not contain all of the terms described in section 10, the Minister must pay the lender the amount of any loss, calculated in accordance with subsection 38(7), sustained in respect of the loan if

• (a) the non-compliance was inadvertent; and

• (b) the lender provides the Minister with documentation substantiating the missing terms.

25.3 Despite the fact that the primary security taken by the lender is not enforceable, the Minister must pay the lender the amount of any loss resulting from the loan, calculated in accordance with subsection 38(7), on the portion of the amount of principal outstanding on the loan to which the non-compliance relates if

• (a) the non-compliance was inadvertent;

• (b) the requirements set out in section 14 with respect to the validity and ranking of the security are complied with; and

• (c) the lender provides the Minister with documentation that substantiates the following:

  • (i) the lender, or their agent or mandatary, performed, during the period beginning 30 days before the day on which the loan was approved and ending 90 days after the final disbursement under the loan agreement, an on-site or virtual visit of the premises where the borrower’s small business is carried on or about to be carried on, and

  • (ii) the lender, or their agent or mandatary, confirmed that the assets for which the loan under subsection 5(1) was approved were delivered to and, if required, installed at the premises where the borrower’s small business is carried on or about to be carried on at the time of the on-site visit.

25.4 If the non-compliance was inadvertent with respect to an outstanding loan amount referred to in any of paragraphs 4(2)(b) to (e) of the Act or in section 6.1, the Minister must pay the lender the amount of any loss, calculated in accordance with subsection 38(7), on the portion of the amount of the principal outstanding on the loan to which the non-compliance does not relate.