Three lenders on one purchase means three separate rulebooks running at once: a statutory loss-share that caps at the loan level and again at the lender's portfolio level, an institutional mandate that has to complement rather than duplicate, and a PPSA registration race that decides who actually gets paid first if it goes wrong.
Key takeaways
SECTION 01 OF 03
CSBFP's protection to its participating lender is capped twice, at two different units, and this hub's own fact-checking has already caught a file that conflated them. The per-loan figure is the Minister's loss-sharing ratio: liability is “limited to the lesser of (a) 85%, or any prescribed lesser percentage, of its eligible loss… and (b) a prescribed maximum amount.” (Canada Small Business Financing Act, s.8) The separate, portfolio-level figure caps the Minister's liability to each lender across “each consecutive five-year period”: 90% on the tranche of aggregate loans up to $250,000, 50% on the tranche between $250,000 and $500,000, and 12% on the tranche above $500,000 for loans made after March 31, 2009 (s.6(2)). The first figure answers how exposed is the bank on this one loan; the second answers how exposed is the bank across its whole CSBFP book this five-year period — and the per-borrower ceiling on the loan itself is a third, separate figure again, currently $1,150,000 under s.4(2)(e).
A CSBFP loan cannot finance a share purchase at all, which this hub's CSBFP funding guide already covers in detail; the point that matters for stacking is narrower — whatever CSBFP does not or cannot cover on an eligible asset purchase is exactly the gap a second lender fills.
SECTION 02 OF 03
Layering BDC into the same deal brings its own governing clause, already the subject of a case file in this hub: BDC's services “are to fill out or complete services available from commercial financial institutions” (Business Development Bank of Canada Act, s.14(8)) — a mandate limit on the institution, settled in practice through syndication under s.14(2)(c) rather than by BDC attempting to replace the other lender outright. See the case file on BDC's complementary mandate for the full mechanics and a worked example.
If the third lender in the stack is a credit union rather than a chartered bank, its own object clause is in play too: a credit union exists “to provide on a co-operative basis financial services primarily for its members” (Credit Unions and Caisses Populaires Act, 2020, s.23(1)), which can mean the buyer's operating company needs to hold a membership before the credit union will lend at all — a precondition a chartered bank relationship does not carry. See the companion article on credit unions for that structure in full.
SECTION 03 OF 03
None of the mandate or loss-sharing rules above determine ranking if the deal goes wrong — that is a PPSA registration question, and it runs on its own clock. Ontario's default rule is order of registration: “Where priority is to be determined between security interests perfected by registration, priority shall be determined by the order of registration regardless of the order of perfection.” (Personal Property Security Act (Ontario), s.30(1), para. 1) With three lenders potentially registering against overlapping collateral — the CSBFP-participating bank against the eligible assets, BDC against its subordinate position, a credit union against its own facility — the sequence and content of each registration is what a court looks at first, not which lender's own published mandate sounds most senior.
Practically, this means the closing checklist has to sequence registrations deliberately and, where two lenders are meant to rank in a particular order despite the raw registration timeline, document that ranking directly with a subordination agreement under PPSA s.38 rather than relying on which lender's mandate reads as more senior. See Treadstone Law's answer on searching the PPSA registry for how a search confirms what is actually registered before closing.
No. A CSBFP loan cannot finance a share purchase at all — it only covers an eligible asset purchase. Whatever CSBFP does not or cannot cover on that asset purchase is exactly the gap a second lender, such as BDC or a credit union, is brought in to fill.
No. BDC’s own governing Act limits its services to filling out or completing services already available from commercial financial institutions, rather than replacing them. In practice that mandate limit is resolved through syndication, with BDC lending alongside the other lender rather than instead of it.
No. Ranking among multiple secured lenders is a PPSA registration question, decided by the order in which each lender registers against the collateral, regardless of which lender’s mandate reads as more senior. Where two lenders are meant to rank in a particular order, that has to be documented directly with a subordination agreement.
Sources
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