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

Regulations are current to 2024-02-06 and last amended on 2022-07-04. Previous Versions

Guarantees and Suretyships (continued)

Substitution of Guarantees and Suretyships

 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

 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.

  • SOR/2009-102, s. 24(F)

 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.

  • SOR/2009-102, s. 24(F)

 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  • (c) [Repealed, SOR/2009-102, s. 15]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.

  • SOR/2009-102, ss. 15, 25(F)
  • SOR/2014-7, s. 13
  • SOR/2016-18, s. 5
  •  (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.

 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.

  • SOR/2009-102, s. 16
  • SOR/2014-7, s. 15(F)

 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.

 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.

  •  (1) Subject to subsection (3), in the case where the requirements with respect to guarantees and suretyships set out in sections 19 to 22 were not satisfied in respect of a loan made before April 1, 2014, the Minister must pay the lender the amount of any loss resulting from the loan, calculated in accordance with subsection 38(7) if

    • (a) the loss was not affected by the non-compliance and the non-compliance was inadvertent; and

    • (b) the aggregate amount recovered from the realization of personal guarantees and suretyships, if any, is not greater than the sum of

      • (i) 25% of the original amount of the loan,

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

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

      • (iv) legal fees and disbursements — other than costs referred to in subparagraph (iii) — 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) Subject to subsection (3), in the case where the requirements with respect to guarantees and suretyships set out in sections 19 to 22 were inadvertently not satisfied in respect of a loan made after March 31, 2014, the Minister must pay the lender the amount of any loss resulting from the loan, calculated in accordance with subsection 38(7), less the guarantee and suretyship taken but not realized due to the non-compliance.

  • (3) In the case where the lender has taken a secured personal guarantee or suretyship, the Minister must pay the lender the amount of any loss resulting from the loan calculated in accordance with subsection 38(7) if

    • (a) the lender has inadvertently taken a secured guarantee or suretyship; and

    • (b) the lender has not realized on, and has released, the security on the guarantee or suretyship.

  • SOR/2009-102, s. 24(F)
  • SOR/2014-7, s. 16
  •  (1) If the conditions set out in subsection (2) have been met, the Minister must pay the lender the amount of any loss, calculated in accordance with subsection 38(7), sustained in respect of a loan despite any of the following non-compliances:

    • (a) [Repealed, SOR/2009-102, s. 17]

    • (b) a fee or charge is payable, other than a fee or charge referred to in section 10 of the Act;

    • (c) the rate of interest payable in respect of the loan is greater than the rate provided by section 12;

    • (d) a charge or premium referred to in paragraph 13(1)(a) or (b) is combined with the rate of interest payable in respect of the loan, when the charge or premium is expressed as a percentage of the outstanding amount of the loan and when the percentage that is attributable to the charge or premium is not clearly set out in the loan agreement;

    • (e) the costs required to convert the loan into a fixed rate or variable rate loan or for the prepayment of all or part of the loan exceed the costs that the lender would impose if it were a loan of the same amount; or

    • (f) costs are charged that are not imposed on an ordinary loan of the same amount or that exceed the costs that would be imposed on an ordinary loan of the same amount.

  • (2) The Minister must make a payment to a lender under subsection (1) if

    • (a) the loss was not affected by the non-compliance and the non-compliance was inadvertent;

    • (b) the lender has reimbursed the borrower for any resultant overcharges, unless the lender has provided the Minister with documentation that substantiates the fact that it is unable to locate the borrower; and

    • (c) the lender has otherwise remedied the non-compliance.

  • SOR/2009-102, ss. 17, 24(F)
  • SOR/2014-7, s. 17

 Notwithstanding section 35, if a lender does not provide a report as required by section 34 until after the time required by that section and the non-compliance was inadvertent, the Minister, after receiving the report, must pay to the lender the amount of any loss, calculated in accordance with subsection 38(7), sustained in respect of the loan or loans to which the report relates.

  • SOR/2009-102, s. 24(F)

 When the loan term is longer than the applicable maximum term specified in subsection 6(2), the Minister must pay the lender the amount of any loss calculated in accordance with subsection 38(7) if the default referred to in section 36 occurs

  • (a) in the case of a loan referred to in any of paragraphs 5(1)(a) to (d), or in the case of a loan to finance the payment by the borrower of registration fees payable in respect of a loan referred to in any of paragraphs 5(1)(a) to (d), within 15 years after the day on which the first payment of principal and interest is due; and

  • (b) in the case of a loan referred to in paragraph 5(1)(e), or in the case of a loan to finance the payment by the borrower of registration fees payable in respect of a loan referred to in paragraph 5(1)(e), within five years after the day on which the line of credit is opened by the lender or before the expiry of any renewal agreement referred to in subsection 10(6).

Transfer of Loans Between Lenders

  •  (1) A lender may assign a loan to another lender at the request of the borrower if the Minister’s liability under subsection 6(2) or (3) of the Act in relation to the remaining loans of the transferor does not, as a result of the transfer, exceed the amount already paid by the Minister to the transferor.

  • (2) The transferee must notify the Minister of the transfer in the form referred to in subsection (3). The Minister must determine whether the requirements set out in subsection (1) have been met and must notify both lenders of the determination.

  • (3) A form must be signed by the borrower and by both lenders and must include the loan registration number and the borrower’s acknowledgement that it has requested the transfer.

  • (4) The Minister’s liability under the Act continues in respect of any loss sustained by the transferee in respect of the loan.

  •  (1) A lender, on the request of the borrower, may make a loan for the purpose of repaying a loan made by another lender in an amount not greater than the outstanding amount of the loan of the other lender if

    • (a) the loan term is not longer than the applicable maximum term specified in subsection 6(2); and

    • (b) security of the same rank is maintained or taken by the lender on the assets that were used to secure the loan of the other lender.

  • (2) For the purposes of the Act and these Regulations, a loan that is made under subsection (1) is considered to be a loan of the same class as the loan of the other lender.

  • (3) For the purpose of paragraph (1)(a),

    • (a) the loan term for a loan referred to in any of paragraphs 5(1)(a) to (d) is the period beginning on the day on which the first payment of principal and interest is due in respect of the loan of the other lender and ending on the day on which the last payment of principal and interest is due in respect of the new loan; and

    • (b) the loan term for a loan referred to in paragraph 5(1)(e) is the period beginning on the day on which the loan is opened by the other lender.

  • (4) A lender that makes a loan under subsection (1) must notify the Minister of the making of the loan in the form referred to in subsection 29(3). The Minister must determine whether the requirements set out in subsection 29(1) have been met and must notify both lenders of the determination.

  • (5) Subsections 29(3) and (4) apply, with any modifications that the circumstances require, in respect of a loan made under this section.

Amalgamation of Lenders and other Actions Relating to Lending

  •  (1) Before undertaking any of the following actions, the lender must notify the Minister in writing of their intention to undertake the action and of the day on which it is to take effect:

    • (a) a lender amalgamates with another lender;

    • (b) a lender acquires the lending business of another lender;

    • (c) a lender discontinues its commercial lending business and sells all of its outstanding loans to another lender; and

    • (d) a lender closes a branch and sells that branch’s outstanding loans to another lender.

  • (2) When an action set out in paragraph (1)(a) takes effect, the Minister’s liability under the Act in respect of losses sustained by the amalgamating lenders as a result of loans made by them continues in respect of losses sustained by the new lender as a result of those loans and

    • (a) the loans made by the amalgamating lenders are considered to have been made by the new lender;

    • (b) the amount already paid by the Minister in respect of those loans to the amalgamating lenders as a result of the Minister’s liability under subsection 6(2) of the Act is considered to have been paid to the new lender; and

    • (c) if, as a result of the amalgamation, the amount already paid by the Minister to the amalgamating lenders as a result of the Minister’s liability under subsection 6(2) of the Act is greater than the Minister’s liability with respect to the new lender, the Minister’s liability is considered to be equal to the amount already paid.

  • (3) When an action set out in any of paragraphs (1)(b) to (d) takes effect, the Minister’s liability under the Act continues in respect of losses sustained by the transferee lender as a result of those loans and

    • (a) the Minister’s liability under the Act in respect of losses sustained by the transferor as a result of loans made by them continues in respect of losses sustained by the transferee;

    • (b) the loans made by the transferor are considered to have been made by the transferee;

    • (c) the amount already paid by the Minister in respect of those loans to the transferor as a result of the Minister’s liability under subsection 6(2) of the Act is considered to have been paid to the transferee; and

    • (d) if, as a result of the transfer, the amount already paid by the Minister to the transferor and transferee as a result of the Minister’s liability under subsection 6(2) of the Act is greater than the Minister’s liability with respect to the transferee, the Minister’s liability is considered to be equal to the amount already paid.

  • SOR/2014-7, s. 19
 

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