Political Financing Handbook for Nomination Contestants and Financial Agents (EC 20182) – December 2023

4. Loans

This chapter discusses eligible sources of loans and how different loans and interest are reported. It covers the following topics:

• Getting a loan
• Types of loans
• Loan interest
• Repaying a loan

Getting a loan

Loans are used as a source of financing. The financial agent has to manage campaign finances properly to ensure that all loans are repaid.

Nomination contestants may receive loans from either a financial institution or an individual who is a Canadian citizen or permanent resident. Loans from any other person or entity are not permitted.

A written loan agreement must accompany all loans.

Loans from financial institutions

There is no limit to the amount a campaign can borrow from a financial institution. Note however that if the financial institution requires a loan guarantee, only individuals who are Canadian citizens or permanent residents can guarantee the loan. The amount an individual guarantees is subject to the individual's contribution limit.

If the loan does not go straight from the financial institution to the campaign bank account, but instead goes through the contestant as an intermediary, this is not a loan from the financial institution. It is a loan from the contestant. See Loans from individuals below.

Note: A financial institution must charge a fair market rate of interest on loans made to nomination contestants. Any forgone interest resulting from the financial institution charging a lower interest rate would constitute a non-monetary contribution from an ineligible contributor.

Loans from individuals

An individual can lend money to a campaign as long as the total of the individual's contributions, the unpaid balance of loans made that year and the amount of any outstanding loan guarantees made that year does not at any time exceed the contribution limit in the calendar year.

If an individual (including the contestant) obtains a personal loan from a financial institution and lends those funds to the campaign, the lender is the individual and not the financial institution. The loan amount would be subject to the individual's contribution limit. When the contestant takes out a loan to fund their campaign, the original personal loan from the financial institution must be guaranteed by their personal property.

Note: An individual cannot use the money, property or services of another person or entity to make a loan to a nomination contestant, if the other person or entity provided those resources to make the loan possible.

Types of loans

Term loan

A term loan is repaid in regular payments over a set period. It may be either a fixed rate loan, allowing the borrower to lock in at a specific interest rate, or it may be a variable rate loan, where the interest rate fluctuates over time. The term should end no later than three years after the selection date (or election day, if the selection date falls within an election period or within 30 days before it).

Demand loan

A demand loan is a loan with no specific payment deadline. It is due whenever the lender demands to be repaid. We recommend that the written loan agreement for a demand loan include a maximum term for the repayment that ends no later than three years after the selection date (or election day, if the selection date falls within an election period or within 30 days before it).

Overdraft protection and line of credit

When a campaign uses overdraft protection or a line of credit, it is reported as a loan. If the financial institution requires a guarantee, only individuals who are Canadian citizens or permanent residents can guarantee the overdraft or line of credit. The amount an individual guarantees is subject to the individual's contribution limit.

For an overdraft or line of credit, the financial agent has to report the following information:

• the amount of the loan
• the name and address of the financial institution
• the interest rate charged
• the full name and address of any guarantors and the amounts they have guaranteed
• for a line of credit where funds were transferred into the bank account before being used, the dates and amounts of any payments of principal and interest
• the unpaid balance at the end of each calendar year and as of the date of the return

The amount of the loan is calculated as follows:

• for an overdraft, it is the maximum amount overdrawn
• for a line of credit where funds were transferred into the bank account before being used, it is the sum of all transfers to the bank account
• for a line of credit where funds were paid directly to the supplier, it is the maximum amount drawn (and this is reported as an overdraft rather than a line of credit)

Loan interest

Interest incurred on loans is a nomination campaign expense, whether it is paid or accrued.

Interest incurred during the contest period is a nomination contest expense, while interest incurred before or after the contest period is an other nomination campaign expense.

If the interest rate on a loan from an individual is lower than the market interest rate, the financial agent will need to record the forgone interest as a non-monetary contribution from the individual.

Note: If the loan is from an individual who is not in the business of lending money and the forgone interest on the loan is $200 or less, the non-monetary contribution is deemed to be nil.

Repaying a loan

Loan repayments may be made any time up to 36 months after the selection date (or election day, if the selection date falls within an election period or within 30 days before it). Authorization is not required from Elections Canada or a judge before making these payments.

See Chapter 15, Managing Unpaid Claims and Loans.

Note: Loan repayments have to be reported for all types of loans except overdraft protection and lines of credit used to pay suppliers directly.

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