Rescinded [2017-04-01] - Directive on Loans and Loan Guarantees

Describes the requirements to obtain the appropriate authorization to initiate a loan or loan guarantee program, or a single loan or loan guarantee, including the authority to modify terms and conditions.
Date modified: 2010-08-03

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1. Effective date

1.1 This directive takes effect on October 1, 2009.

1.2 It replaces the Policy on Loans (dated October 1, 1996).

2. Application

2.1 This directive applies to departments as defined in section 2 of the Financial Administration Act.

2.2 This directive does not cover accountable advances, which are not loans. For more information see the Directive on Accountable Advances.

3. Context

3.1 This directive supports the objectives of the Policy on Internal Control by outlining the responsibilities of departmental officials in obtaining the appropriate authorization to initiate a loan or loan guarantee program, or a single loan or loan guarantee, including authority to modify terms and conditions.

3.2 Loans and loan guarantees are strategic policy instruments of government that normally support initiatives of a commercial, economic development, or industrial nature in Canada and internationally.

3.3 Loans and loan guarantees are made for various purposes and with different contractual terms and conditions. They are made 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 people, and individuals.

3.4 Loans are authorized on the expectation of full repayment of principal and related interest. Exceptions to full repayment include concessionary (concessional) loans. Accordingly, if a fixed repayment schedule is not feasible or if repayment is conditional on some future event, a loan may not be issued. Instead some other form of financial assistance, such as repayable contributions, should be considered. For more information see the Policy on Transfer Payments and associated directives.

3.5 The authorization of loan guarantees is based on the premise that a borrower's demonstrated need is reasonable and the related undertaking or project is commercially viable and suitable for debt financing.

3.6 This directive supports the Policy on Internal Control. This directive is to be read in conjunction with the following:

3.6.1 Directive on Receivables Management as it applies to appropriate collection measures for loans; and

3.6.2 Debt Write-off Regulations, where a loan or the balance of a loan that proves uncollectible is to be written off.

3.7 This directive is issued pursuant to section 7 of the Financial Administration Act.

4. Definitions

Definitions to be used in the interpretation of this directive are in the Appendix.

5. Directive statement

5.1 Objective

To ensure that all loans and loan guarantees are authorized appropriately and the loan portfolio is managed efficiently and effectively.

5.2 Expected results

  • Financial resources are used appropriately, based on the right authority, and losses due to waste, abuse, mismanagement, errors, frauds, omissions and other irregularities are minimized.
  • The Minister of Finance has approved all terms and conditions for loans and loan guarantees, if authorizing legislation does not detail the terms and conditions.
  • Interest charges to recipients are sufficient to recover the government's cost of funds and losses, if applicable.
  • Loan profiles are updated to comply with risk assessment criteria.

6. Requirements

6.1 Management practices and controls

The chief financial officer is responsible for ensuring that the following management practices and controls, among others, are in place for the sound administration of loans and loan guarantees:

6.1.1 the review of terms and conditions of loans and loan guarantees before seeking approval from the Minister of Finance to ensure, among other things, that authority exists to modify terms and conditions unless otherwise set out in legislation;

6.1.2 securing the necessary non-budgetary and/or budgetary authority in a timely manner;

6.1.3 preparation and presentation of periodic reports to management on the loan receivable portfolio. Loan receivable reports for management are to identify, at minimum, the debtor's name, principal and accrued interest balances, and an aged listing of loans receivable;

6.1.4 periodic reviews of loans, loan portfolios, or both to determine compliance with agreement terms and conditions, in order to calculate the provision for bad debt and to forecast repayment potential;

6.1.5 a year-end examination of all loans and loan guarantees to determine any valuation adjustments required and to take appropriate timely action including writing-off the debt. Note: Debt Write-off Regulations, 1994 apply; and

6.1.6 the inclusion of the following provisions in loan and loan guarantee agreements:

  • stating that under the provisions of the Auditor General Act, the Auditor General has the power to enquire into the use of loans provided and to undertake performance or compliance audits with respect to the use of federal funds, to access the recipient's records, and to enquire about other pertinent information;
  • stating that any person lobbying any federal public entity on behalf of the recipient is registered to comply with the Lobbying Act; and
  • stating that the recipient has not, and will not pay lobbyists on a contingency fee basis or arrange meetings with public office holders.

6.2 Operational

Any senior program official designated by the deputy head to administer loans or loan guarantees is responsible for ensuring the following:


6.2.1 Loans and loan guarantees are structured to cover potential losses from non-performing loans, when appropriate and feasible (e.g. when they are not concessionary in nature). When it is appropriate to cover potential losses, interest rates and guarantee fees will include a risk premium to cover estimated future losses.

6.2.2 A periodic evaluation of loan and loan guarantee program terms and conditions is undertaken to validate a program's continuing relevance and operating criteria (e.g. adequate risk premium to cover potential losses).


6.2.3 Terms and conditions for named recipients and for loan programs for a class of recipients are established and documented by the department, and approved by the Governor in Council on the recommendation of the Minister of Finance, when the authorizing legislation does not detail terms and conditions.

6.2.4 The net balance owing to the government from each recipient, including a repayment schedule and applicable interest provisions, is readily accessible in accounting records.

6.2.5 The amount of any repayment is applied first to the entire sum of interest due at the time of each instalment and then to the principal, unless the loan terms and conditions specify otherwise (e.g. provides for conditional forgiveness or deferment of interest). Note that the Interest and Administrative Charges Regulations, Debt Write-Off Regulations, Directive on Receivables Management and Guideline on Security for Debts Due to the Crown apply.

6.2.6 Loans are reviewed at least annually for the purposes of establishing loss provisions and any amounts to be written-off.

Loan guarantees

6.2.7 The appropriate instrument is used for obtaining Parliamentary authorization of loan guarantees:

6.2.8 Terms and conditions for all loan guarantee programs and loan guarantees of named recipients not specified in legislation are approved by the Minister of Finance.

6.2.9 Agreements include a provision that if any potential default situation occurs, it is communicated by the lenders to departmental officials in a timely manner. Follow-up action is to be taken immediately to ensure that the loan is recovered to the fullest extent practicable.

6.3 Monitoring and reporting requirements

6.3.1 Chief financial officers are responsible for supporting their deputy head by overseeing the implementation and monitoring of this directive in their departments, bringing to the deputy head's attention any significant difficulties, gaps in performance or compliance issues, and developing proposals to address them, and reporting significant performance or compliance issues to the Office of the Comptroller General.

6.3.2 The Comptroller General is responsible for monitoring departments' compliance with the requirements of this directive and conducting a review within five to eight years.

7. Consequences

7.1 In instances of non-compliance, deputy heads are responsible for taking corrective measures within their organization with those responsible for implementing the requirements of this directive.

7.2 In support of the responsibility of deputy heads to implement the Policy on Internal Control and related instruments, chief financial officers are to ensure corrective actions are taken to address instances of non-compliance with the requirements of this directive. Corrective actions can include requiring additional training, changes to procedures and systems, the suspension or removal of delegated authority, disciplinary action, and other measures as appropriate.

7.3 Individuals are reminded that sections 76 to 81 (Civil Liability and Offences) of the Financial Administration Act as well as sections 121 (Frauds against the Government), 122 (Breach of Trust), 322 (Theft) and 380 (Fraud) of the Criminal Code may apply.

8. Roles and responsibilities of government organizations

This section identifies other significant departments with respect to this directive. In and of itself, it does not confer an authority.

The Department of Finance Canada is responsible for reviewing and approving terms and conditions of loan programs and of individual and program loan guarantees in accordance with section 60.2(2) of the Financial Administration Act.

The Office of the Auditor General has the right to enquire into the use of loans provided by departments to parties outside the government.

The Treasury Board Secretariat, Office of the Comptroller General is responsible for development, oversight and maintenance of this directive and for providing interpretative advice.

9. References

10. Enquiries

Please direct enquiries about this directive to your departmental headquarters. For interpretation of this directive, departmental headquarters should contact:

Financial Management Policy Division
Financial Management and Analysis Sector
Office of the Comptroller General
Treasury Board Secretariat
Ottawa ON K1A 0R5

Telephone: 613-957-7233
Fax: 613-952-9613

For enquiries related to the types and establishment of named loans and loan guarantees or loan and loan guarantee programs, departmental headquarters should contact:

Financial Sector Policy Branch
Financial Markets Division
Government Financing Section
Department of Finance Canada
Ottawa ON K1A 0G5

Telephone: 613-943-9403
Fax: 613-943-2039

Appendix – Definitions

Budgetary authority (autorisation budgétaire)
Is an authorityto spend funds (e.g. operating and capital expenditures) that impact on the annual surplus or deficit of the Government of Canada.
Class of recipient (catégorie de bénéficiaires)
Includes persons, organizations, or both (e.g., corporations, other governments) that meet the established eligibility criteria of an approved program that qualifies them to apply for a loan or loan guarantee. (This definition relates to loans and loan guarantees only.)
Concessionary (concessional) loan (prêt à des conditions de faveur [assorti de conditions privilégiées])
Are concessions provided to the borrower such as conditional forgiveness of all or part of a loan, subsidized interest, or non-interest bearing provisions.
Contractual terms and conditions (modalités contractuelles)
Are any provisions forming part of an agreement (contract) such as the interest rate charged to a borrower. Each provision gives rise to a contractual obligation, breach of which can give rise in turn to legal consequences.
Guarantee fees (commission de garantie)
Are fees charged by the government to the lender that ensures that the government receives some direct return for risk exposure.
Loan guarantee (garantie d'emprunt)
Is a promise that the government will repay a lender, (e.g. a bank or other financial institution providing credit or funding to another party), 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.
Loan (prêt)
Is money lent to a borrower, represented by a promise by the borrower to repay a specific amount, at a specified time or times, or on demand, usually with interest. For purposes of this directive, loans do not include repayable contributions
Management practices and controls (pratiques et contrôles de gestion)
Are policies, processes, procedures and systems that enable a department to operate its programs and activities, use its resources efficiently and effectively, exercise sound stewardship, fulfill its obligations, and achieve its objectives.
Named recipient (bénéficiaire désigné)
Is a person or an organization that is specifically named in legislation to receive a loan or loan guarantee. (This definition relates to loans and loan guarantees only.)
Non-budgetary authority (autorisation non budgétaire)
Is an authority to make outlays that represent changes in the composition of the financial assets of the Government of Canada. They include loans, accountable advances and investments in Crown corporations.
Periodic (périodique)
Is an interval of time determined to be reasonable by the chief financial officer based on risk and on circumstances particular to the department, e.g., volume of transactions, automation of systems, and size and structure of organization.
Program (programme)
Is a plan approved for achieving a particular economic objective as it relates to loans and loan guarantees. It is targeted to a class of recipients and includes specific terms and conditions.
Program terms and conditions (conditions du programme)
Are government requirements placed on loan and loan guarantee programs that normally include eligibility criteria, maximum amounts payable, maximum duration of agreements, activities to be undertaken, costs to be covered, interest rate(s) to be charged, security to be taken if appropriate, and other relevant criteria. Some of these provisions form part of the loan and loan guarantee contractual terms and conditions.
Repayable contribution (conditional and unconditional) (contribution remboursable [conditionnelle et sans condition])
Isa type of transfer payment that requires repayment of the contribution, either conditionally or unconditionally. For more information see the policy and directives on transfer payments and the Treasury Board Financial Information Strategy Accounting Manual.
Risk premium (prime de risque)
Is incremental interest added to the cost of borrowing to compensate the lender (e.g., the government) for the potential risk of loss.
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