Presentation: Realizing on a Loan

Overview

• Default on loan
• Notice process and timeline
• Realization process
• Quick facts
• Claim submission process
• Reference tools

Default on loan

• Default occurs when a borrower fails to comply with a material condition of the loan agreement.
• Material conditions can include borrower's failure to:
  • Make principal and/or interest payments;
  • Maintain ownership of the secured assets;
  • Maintain insurance; or
  • Pay property taxes.
• A minor failure (i.e. late filing of yearly statements) is not considered material.
• If payments are current but borrower is in default of a material condition, lenders may follow their normal lending practice and take action.

Notice process and timeline

• The lender may send a Notice of Default^{Footnote 1} demanding the borrower comply with the conditions set out in the notice within a specified time period.
• The lender shall issue a Demand for repayment^{Footnote 1} if the borrower fails to comply with the Notice of Default.
• Time limit for submitting a claim for loss is 60 months^{Footnote 2} and begins after the day on which the borrower made the last payment (principal or interest) on a loan under the terms of the loan agreement.
• If required, a Request for Extension of claim submission date can be submitted.

Realization process

• Lender must take all necessary measures:
  • to minimize the loss;
  • to realize on 100% of the assets of the business;
  • to realize up to 100% of the corporate guarantee; and
  • for personal unsecured guarantees and personal liabilities, the amount of the guarantees or suretyships signed by the guarantor.
• The lender shall provide documentation substantiating the sale price of the assets. If realization < costs, abandon the assets and provide documentation supporting the decision.
• The lender may negotiate a compromise settlement in order to reduce legal costs.
• If necessary, the lender shall explain the sharing of the realization proceeds attributable to the CSBF loan.

Quick facts

• Minister's liability is limited to up to 85% of lender's eligible losses.
• Claims may be adjusted or disallowed due to:
  • Lacking evidence of purchase or proof of payment;
  • Failure to provide a proper appraisal;
  • Failure to take or maintain a valid and enforceable security; or
  • Sharing of realization cost.
• Non compliance remedies: payment of a claim is permitted in certain situations, provided that the non-compliance is remedied as stipulated in the Regulations.
• Once a claim is final, the Minister is subrogated to all the rights of the lenders up to the amount paid.

Claim submission process

• Lenders must submit to Innovation, Science and Economic Development Canada a properly completed Claim for Loss Form.
• Types of Claims include:
  • Regular claim for loss – after realization on all security, guarantees or suretyship is complete;
  • Interim claim for loss – when realization on security is complete but before implementation of compromise settlement or full realization on guarantees and suretyship is complete;
  • Additional claim – can be presented for a period of 12 months following the time limit for submitting a claim for loss; and
  • Appeal claim – Lender provide additional information and requests that the Directorate review its decision.
• When submitting a claim, the lender may refer to the checklist of required documents.

Reference tools

• Toolbox for Lenders
• Each financial institution has its own designated Senior Program Delivery Officer who can be contacted at:
  • Toll-free: 1-866-959-1699
  • Email: csbfp-pfpec@ised-isde.gc.ca
  • Fax: 1-343-291-1837
  • Address: 235 Queen Street, Ottawa, Ontario K1A 0H5