Anonymised, illustrative composite. The equipment being financed had already secured a different loan from the same bank. The Regulations respond to that overlap with a stricter independence rule that applies nowhere else in the programme.
At a glance
A buyer agreed to purchase the core equipment of a small metal fabrication shop for $340,000, financed through a CSBFP-backed term loan of $310,000. The seller’s existing conventional equipment loan — with the same bank the buyer was now borrowing from — was secured against that same equipment, and would be repaid out of the sale proceeds at closing.
The bank’s relationship manager, moving to close the file quickly, proposed its usual approach: an appraisal from the bank’s own staff equipment appraiser, a role the bank used on most of its CSBFP files without incident. That appraiser is at arm’s length from the borrower — a stranger to the buyer, with no relationship to disclose on that side of the test. What the relationship manager had not registered is that this file had a second party to consider.
The requested facility was $310,000 against a $340,000 purchase price, entirely equipment, comfortably inside the programme’s own category cap. The bank’s informal, pre-appraisal estimate of the equipment’s value — from the same in-house appraiser proposed for the file — was $320,000.
The independent third-party appraisal ultimately obtained, from a member of a recognized professional appraisal association with no relationship to either the borrower or the bank, valued the same equipment at $295,000 — a $25,000 gap from the bank’s own informal number. Applying the lesser-of-cost-or-appraised-value rule, the eligible loan came down to $295,000.
Section 9(1) requires an appraisal “from… an appraiser who is a member of any professional association that is recognized under a federal or provincial law and who is at arm’s length from the borrower, and, in the case of assets described in paragraph (c), from the lender.” Paragraph (c) is the narrowest of the three triggers: it applies to “assets from the lender or its representative that, at the time of purchase, are being or had been used to secure a conventional loan of the lender.” That is exactly this file — the seller’s loan, secured against the equipment, was with the same bank now lending to the buyer.
Subsection (2) restates the point for the category of assets most CSBFP business-purchase loans actually finance: “In the case of a loan to purchase equipment, leasehold improvements or intangible assets or to finance working capital costs, the appraisal must be made by an appraiser who is at arm’s length from the borrower and, in the case of equipment or leasehold improvements that are assets referred to in paragraph (1)(c), the lender.” Twice in one section, for this one trigger only, the Regulations require the appraiser to clear a relationship test against both sides of the transaction — the borrower, always, and the lender, specifically because the lender’s own prior secured position on the same asset is what brought the appraisal requirement into being in the first place.
A staff appraiser employed by the bank is not at arm’s length from the bank, whatever their independence from the borrower. Using one on a paragraph (c) file does not produce a defective appraisal in the ordinary sense — it produces no appraisal that satisfies the Regulations at all, because the one relationship the rule was specifically written to police is the one the bank’s own proposal left unaddressed.
The buyer’s advisor caught the gap before the bank’s appraiser was engaged and asked for an independent third-party valuation instead. The bank agreed without objection once the point was raised — it was an oversight in the file handling, not a disputed interpretation. The two-week delay for the new appraisal fit inside the existing closing timeline. The loan funded at $295,000, $15,000 below the original request, made up from the buyer’s own equity.
An appraisal from a party not at arm’s length from the lender, on a paragraph (c) file, does not satisfy subsection (1) or (2) regardless of the number it produces. Disbursing on that basis would have left the facility non-compliant with the programme’s own eligibility conditions from day one — a defect that a routine post-funding compliance review, or a claim on the loss-sharing guarantee after a default, could have surfaced years later, with the bank by then unable to fix it retroactively.
The tell was the phrase “our usual appraiser” doing the analytical work that a Regulations citation should have done. The bank’s in-house appraiser satisfies the arm’s-length-from-borrower test on every file; the paragraph (c) trigger is the one circumstance where that is not enough, and it is easy to miss precisely because it depends on a fact about the asset’s own financing history rather than about the deal in front of you.
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