BDC's own Act caps how much the Bank can borrow and guarantee against its own equity — a real, quotable ratio. It says nothing about the size of any one loan, and confusing the two is a wrong-unit error in the same family as the ones this hub's case files have already caught elsewhere.
Key takeaways
SECTION 01 OF 03
Section 30 of BDC's constituting Act sets a leverage ceiling on the institution: “The aggregate of (a) the borrowings of the Bank under subsection 18(1) and section 19, and (b) the contingent liabilities of the Bank in the form of guarantees given by it must not at any time exceed twelve times the equity of the Bank.” (Business Development Bank of Canada Act, s.30(1)) Section 30(2) then defines “equity” for that purpose as the amounts paid for BDC's shares (including contributed surplus), its retained earnings (which “may be positive or negative”), amounts paid to it as capital by Parliamentary appropriation, and certain prescribed debt or hybrid-capital instruments.
Read the unit carefully: this is a ratio on the Bank's entire balance sheet — total borrowings and guarantees against total equity — not a ratio applied loan by loan, and not a ceiling on how large any single facility to any single borrower can be. What actually differs, loan by loan, between a BDC facility and a chartered bank's is more often the security package than any leverage arithmetic — a question Treadstone Law's answer on whether a BDC loan requires different security than a bank loan addresses directly for an Ontario purchase.
SECTION 02 OF 03
Nothing in s.30 limits the size of a term loan BDC can make toward one business purchase, and nothing in it requires a borrower's own deal to carry any particular leverage multiple. The 12-times figure describes BDC's own aggregate capital structure — how much it can fund its total loan and guarantee book relative to its own equity base — which is a prudential constraint on the institution, of the same general kind a bank faces under its own capital rules, not a term of any credit agreement BDC signs with a borrower.
The distinction matters because the two figures sound alike and are not: a borrower confusing BDC's 12-times institutional ceiling with a leverage covenant on their own loan would be making exactly the kind of category error — a rule that governs one unit misapplied to a different one — that has already produced real errors elsewhere in this hub's coverage of statutory lending limits, including a CSBFP file that applied a lender's five-year portfolio cap to a single loan. See the companion article on stacking CSBFP, BDC and a credit union for that comparison.
SECTION 03 OF 03
A 12-times debt-to-equity ceiling is a conventional prudential guardrail: it keeps a lender's own borrowing (which funds its lending book) from growing indefinitely relative to the capital base that absorbs losses. Where it bites is at the institutional level — on how much total lending capacity BDC can fund, on its own balance-sheet planning, and on how Parliament and the Governor in Council manage BDC's capitalization over time via s.30(2)(c)'s appropriation mechanism — not on any individual credit decision a buyer will encounter.
A buyer's actual loan size is instead governed by the ordinary criteria in s.14(3): whether the enterprise is engaged in business in Canada, whether other parties have a continuing commitment to it, and whether the enterprise may reasonably be expected to succeed — the same test discussed in the case file at the case file on BDC's complementary mandate and lending criteria. The leverage ceiling and the lending criteria are two different provisions doing two different jobs, and neither substitutes for the other.
No. BDC Act s.30(1) is a ratio on the Bank’s entire balance sheet — total borrowings and guarantees against its own equity — not a limit applied loan by loan. It says nothing about the size of any single facility to any single borrower.
Section 30(2) defines it as the amounts paid for BDC’s shares (including contributed surplus), its retained earnings (which may be positive or negative), amounts paid to it as capital by Parliamentary appropriation, and certain prescribed debt or hybrid-capital instruments.
A borrower’s loan approval turns on the separate criteria in s.14(3): whether the enterprise is engaged in business in Canada, whether other parties have a continuing commitment to it, and whether it may reasonably be expected to succeed. The institutional leverage ceiling and the per-loan lending criteria are two different provisions doing two different jobs.
Sources
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