1. Loans
3. Enquiries
(a) Loans are made by government departments to a large variety of recipients, including Crown corporations, national governments such as those of developing countries, provincial and territorial governments, international organizations, private corporations, federal government employees, groups of citizens, and individuals for a variety of purposes and in accordance with a variety of different terms and conditions. Generally, classification of loans as non-budgetary implies that repayment is expected with a high degree of certainty. Where there is no fixed repayment schedule or where repayment is conditional on some future event, a loan may not be issued. Instead some other form of financial assistance, such as a repayable contribution, or a grant or contribution must be used. Departments must determine what mechanism is best suited to the particular circumstances at hand.
(b) While some statutes and Appropriation Acts name a single recipient and set a fixed amount, there are other instances where classes of recipients are identified and no fixed amounts are established. In those cases, departments must establish and document policies and eligibility criteria for selecting recipients, determining the amounts, and negotiating the terms and conditions which are often required to be approved by the Governor in Council. If the authorizing legislation does not detail the terms and conditions, Governor in Council approval will be required.
(c) A non-budgetary loan or advance is treated as an asset rather than an expenditure and thus it does not affect the deficit unless it is either written down through a year-end valuation adjustment, forgiven or written off as uncollectible. If a loan has already been totally written-down through a year-end valuation adjustment, any subsequent forgiveness or write-off has no net effect on the deficit although it will increase gross expenditures for the year.
(d) Whenever loans are made, the departmental accounting records must display at all times the net balance owing to the government from each recipient, including a repayment schedule and any applicable interest provisions. When conditions provide for repayment less frequently than quarterly, claims for instalments or other repayments of loans should be made in writing prior to the due date, so that repayments will be received on the due date. Claims for interest due on loans should likewise be issued prior to the due date when payable less frequently than quarterly.
(e) Unless the loan agreement specifies otherwise or provides for the conditional forgiveness or deferment of interest, the amount of any repayment must be applied first to the entire sum of interest due at the time of each instalment and then to the principal.
(f) The collectibility of loans must be reviewed as soon as the first payment is missed or the department has other grounds to doubt the ability of the debtor to repay a loan and thereafter periodically. In addition, at year-end, all loans must be examined to determine if a valuation adjustment is required (see Chapter 4-6 of the Comptrollership volume of the Treasury Board Manual). Write-off action must be taken as a last resort after all attempts, as indicated in Chapter 3-5 of the Comptrollership volume of the Treasury Board Manual, have been pursued.
(a) A loan guarantee is not a loan per se but a guarantee to a lender, such as a bank or other financial institution providing credit or funding to another party, that the government will repay the amount guaranteed, subject to the terms and conditions of an agreement, if the borrower defaults. The guarantee will reduce the lender's risk and should enable the borrower to obtain a loan at a lower interest rate or obtain a loan that might not otherwise have been obtainable.
(b) The approval of the Minister of Finance is required for all contingent liability commitments of the Crown, such as loan guarantees. Parliamentary authority is also required to guarantee a loan. Loan guarantee programs such as the Canada Student Loan Program, must be supported by separate program legislation. However, pursuant to section 29(2) of the Financial Administration Act, specific loan guarantees may be authorized through an Appropriation Act when such guarantees can be listed individually in the Estimates.
(c) Pursuant to section 29(1) of the Financial Administration Act, any payments made to honour loan guarantees, regardless of whether the guarantee was authorized through program legislation or an Appropriation Act, are statutory budgetary expenditures. From a cash-management perspective, it is important to ensure that lenders advise the department in a timely manner of any potential default situations. The department can then begin to take whatever action is necessary to ensure that the loan is recovered to the fullest extent practicable.
(d) Once a borrower has defaulted and the government has honoured the guarantee by paying the lender, all of the lender's rights and interests concerning the loan are subrogated to the Crown. Subject to any provisions to the contrary in the guarantee agreement or relevant statute, the balance of the loan and any interest payable thereon are now payable to the department concerned and must be recorded in the departmental accounts as such. Departments must then employ the appropriate collection measures as specified in chapter 3-5 of the Comptrollership volume, Treasury Board Manual. Should the balance of the loan subsequently prove uncollectible, it must be written off in accordance with the Debt Write-Off Regulations.
Enquiries about this policy should be directed to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:
Financial & Contract Management Sector
Comptroller General Branch
Treasury Board Secretariat
L'Esplanade Laurier
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5
Telephone: (613) 957-7233
Facsimile: (613) 952-9613