How long can a CSBFP business loan term be, and how must it be repaid?

People asking how long business loans can be may mean two different things: the loan term and the amortization. Under the Canada Small Business Financing Regulations, the maximum term for a CSBFP term loan on the asset classes in s.5(1)(a) to (d) is 15 years, beginning on the day the first payment of principal and interest is due. The Regulations treat a line of credit separately, so this page covers term loans only.

What the loan document must say

Section 10(1) of the Regulations says the lender and the borrower must sign a document on or before the day the loan is made. It must set out the principal amount, the rate of interest, the repayment terms, the frequency of payments of principal and interest and the day the first payment is due. The program guidelines add that this can be a promissory note, a loan agreement, a bank contract or another document the lender uses.

The minimum payment schedule

The program guidelines, published by Innovation, Science and Economic Development Canada, say that for a CSBF term loan at least one payment of interest and one payment of principal must be scheduled each year. They also say the first instalment of principal and interest must be scheduled no later than one year from the date of the first disbursement of the loan funds. The guidelines also say payments may be adapted to a borrower’s needs, for example blended, seasonal or escalating, and s.10(1) requires the signed document to record their frequency.

Term and amortization are different

The guidelines say a term loan’s repayment can be amortized over a period longer than 15 years. Their example is a mortgage on real property with an interest term of 5 years and an amortization of 25 years. Where the amortization runs past the 15-year maximum term, the guidelines say either a balloon payment must be scheduled so the loan is fully repaid before the end of the 15th year, or a conventional loan must be made at the 15-year anniversary for the period beyond it.

Renewals and amendments

Under s.10(2), the lender and borrower may agree at any time to amend the loan’s terms, or to renew it at the end of a loan term, up to an aggregate maximum term of 15 years from the same starting day. Section 10(3) says the lender and borrower must sign a document setting out the terms of the renewal or amendment on or before the day it is made. BDC, a separate lender, describes its own acquisition-loan repayment options, such as interest-only payments at the start of the loan. Those are BDC’s terms, not the CSBFP’s.