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

Interpretation

• 1 (1) The definitions in this subsection apply in these Regulations.

  Act

  Act means the Canada Small Business Financing Act. (Loi)

  borrower

  borrower means a person who carries on or is about to carry on a small business to whom a loan has been made under the Act. It does not include Her Majesty or an agent of Her Majesty in right of Canada or a province, a municipality or a municipal or other public body that performs a function of government. (emprunteur)

  conventional loan

  conventional loan means a loan that is not subject to the Act. (prêt ordinaire)

  equipment

  equipment means equipment that is used or to be used in the course of carrying on a small business, and includes computer software, any ship, boat or other vessel used or to be used in navigation and water supply systems. It does not include inventory of the small business except inventory that is leased by the borrower to the borrower’s customers. (matériel)

  going concern

  going concern means a small business that has carried on operations at any time within 60 days prior to purchase or, in the case of a small business that operates on a seasonal basis, during the season prior to purchase. (entreprise en exploitation)

  health care industry

  health care industry means a small business classified under the heading Major Group 86 - Health and Social Service Industries, of the Standard Industrial Classification, 1980 published by Statistics Canada. (industrie des soins médicaux)

  hospitality industry

  hospitality industry means a small business classified under the headings Major Group 91 - Accommodation Service Industries, and Major Group 92 - Food and Beverage Service Industries, of the Standard Industrial Classification, 1980 published by Statistics Canada. (industrie hôtelière)

  improvement

  improvement includes construction, renovation and modernization and, with respect to equipment, installation. (amélioration)

  intangible asset

  intangible asset means a non-monetary asset without physical substance that can be sold, transferred, licensed, rented or exchanged or that arises from a contractual or other legal right. (bien incorporel)

  loan agreement

  loan agreement means any document described in section 10. (contrat de prêt)

  loan term

  loan term means the period set out in a loan agreement for repayment of the total amount of the loan. (durée du prêt)

  mini-storage industry

  mini-storage industry means a small business classified under the heading 479 - Other Storage and Warehousing Industries, of the Standard Industrial Classification, 1980 published by Statistics Canada. (industrie du mini-entreposage)

  responsible officer of the lender

  responsible officer of the lender[Repealed, SOR/2009-102, s. 1]

  working capital costs

  working capital costs means costs to fund the day-to-day operating expenses of a business. (frais liés au fonds de roulement)

• (2) Whether persons are at arm’s length from each other must, for the purposes of these Regulations, be determined in accordance with the Income Tax Act.

• (3) For the purposes of these Regulations, a loan is considered to have been made on the day on which the first disbursement of funds is made by the lender.

• 1.1 (1) For the purposes of subsections 4(3) and 7(2) of the Act, borrowers are related when one borrower

  • (a) controls, directly or indirectly in any manner, the other borrower;

  • (b) is controlled, directly or indirectly in any manner, by the same person or group of persons as the other borrower;

  • (c) carries on their small business in partnership with the other borrower, which carries on another small business; or

  • (d) shares management services, administrative services, equipment, facilities or overhead expenses of the business with the other borrower, but is not in partnership with that borrower.

• (2) [Repealed, SOR/2022-157, s. 2]

• (3) For the purpose of subsection (1), control means to hold shares of a corporation to which are attached more than 50% of the votes that are necessary to elect a majority of its directors.

• (4) Despite subsection (1), borrowers whose businesses are located at different premises are not related if neither borrower derives more than 25% of their actual or projected gross revenues from the other.

Loan Registration

2 A loan must be registered within six months after the day on which

• (a) the loan is made, in the case of a loan referred to in any of paragraphs 5(1)(a) to (d); or

• (b) the line of credit is opened by the lender, in the case of a loan referred to in paragraph 5(1)(e).

• 3 (1) A loan registration form must be signed by the borrower and the lender and contain the following information:

  • (a) the borrower’s name and the civic address and telephone number of the small business;

  • (a.1) the names of the borrower’s shareholders and the names of the guarantors or suretyships referred to in sections 19 and 20;

  • (b) the day on which

    • (i) the loan was made, in the case of a loan referred to in any of paragraphs 5(1)(a) to (d), or

    • (ii) the line of credit was opened by the lender, in the case of a loan referred to in paragraph 5(1)(e);

  • (c) a statement setting out separately

    • (i) the total amount of the loan,

    • (ii) the estimated amount of the loan allocated to each class of loans referred to in paragraphs 5(1)(a) to (e), and

    • (iii) the amount of the loan allocated to the class of loans referred to in paragraph 5(1)(f);

  • (d) in the case of a loan referred to in any of paragraphs 5(1)(a) to (d), the total estimated cost of the purchase or improvement to be financed by the loan or, in the case of a loan referred to in paragraph 5(1)(e), the authorized amount of the line of credit;

  • (e) [Repealed, SOR/2009-102, s. 3]

  • (f) the lender’s acknowledgement that the lender has not charged the borrower any fees or charges other than those authorized by the Act and these Regulations;

  • (g) the borrower’s consent to

    • (i) the Minister’s audit of the loan approval and administration file held by the lender in respect of the loan, and

    • (ii) the release, by the Minister, of information with respect to the borrower’s outstanding loans, to another lender to whom the borrower applies for a loan;

  • (h) the lender’s acknowledgement that, before making the loan, it verified within the branch where the loan was to be made or, if it has no branches, within its organization, that the outstanding loan amount in relation to the borrower does not exceed the applicable limit referred to in paragraph 4(2)(d) or (e) of the Act or in section 6.1;

  • (i) the borrower’s acknowledgement that the outstanding loan amount in relation to the borrower does not exceed the applicable limit referred to in paragraph 4(2)(d) or (e) of the Act or in section 6.1;

  • (i.1) in the case of a loan referred to in paragraph 5(1)(e), the borrower’s acknowledgement that

    • (i) the line of credit will only be used to pay for working capital costs, and

    • (ii) the working capital costs paid through the line of credit were not incurred more than 365 days before the line of credit was authorized;

  • (j) the borrower’s acknowledgement that the making of the loan is not prohibited by any of subsections 5(2), (4) or (6);

  • (k) the lender’s acknowledgement that, before approving the loan, the lender acted in accordance with the due diligence requirements referred to in section 8.

  • (l) [Repealed, SOR/2016-18, s. 1]

• (2) If a loan registration form is transmitted by electronic means, it must include the electronic signature of the lender and contain the information set out in paragraphs (1)(a) to (l) and the following:

  • (a) the borrower’s acknowledgement that the lender is authorized to transmit electronically the information contained in the form on behalf of the borrower and that the borrower has signed a copy of the form; and

  • (b) the lender’s acknowledgement that it will keep a copy of the form that is signed by the borrower on file.

• (3) For the purposes of subsection (2), electronic signature has the same meaning as in subsection 31(1) of the Personal Information Protection and Electronic Documents Act.

• (4) A loan registration form must not be transmitted by electronic means unless it is transmitted through a designated secure electronic registration system.

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

Fees

• 4 (1) The registration fee is

  • (a) in the case of a loan referred to in any of paragraphs 5(1)(a) to (d), 2% of the amount of the loan; and

  • (b) in the case of a loan referred to in paragraph 5(1)(e), 2% of the authorized amount of the line of credit.

• (1.1) If the borrower and the lender renew a loan referred to in paragraph 5(1)(e) within five years after the day on which the line of credit is opened, the lender must pay an additional registration fee of 2% of the renewed authorized amount.

• (1.2) If the borrower and the lender agree to an increase in the authorized amount of a loan referred to in paragraph 5(1)(e), the lender must pay a registration fee of 2% of the increase in the authorized amount.

• (2) The annual administration fee is payable quarterly within two months after the end of each quarter and is calculated at the annual rate of 1.25% applied

  • (a) in the case of a loan referred to in any of paragraphs 5(1)(a) to (d), to the end-of-month balances of the loan during the year; and

  • (b) in the case of a loan referred to in paragraph 5(1)(e), to the daily outstanding amount for the line of credit for each month during the year.

• (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 a loan referred to in any of paragraphs 5(1)(a) to (d) 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.

• (11) On application by a lender, made within one year after the day on which a loan referred to in paragraph 5(1)(e) is opened, the Minister must

  • (a) where the lender has made available less than the 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 made available and subtract the amount of the loan that was not made available 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 authorized amount of the loan registered.

Loan Classes and Conditions

• 5 (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;

  • (d) loans to finance the purchase of intangible assets and working capital costs;

  • (e) lines of credit for working capital costs; or

  • (f) 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 (e).

• (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 (d) may not be used to finance the payment of any refundable taxes.