This page contains answers to commonly asked questions about the Aboriginal Loan Guarantee
Program. Please contact us if your question is not answered here or for more information.
| Q. |
What is a loan guarantee? |
| A. |
Under a loan guarantee, the Province guarantees repayment of the loan to a lender in the event the borrower is unable to pay the loan itself.
A loan guarantee is expected to improve access to financing, as well as, make financing more affordable. In order to make borrowing money for
the purpose of buying equity in electricity infrastructure projects more affordable, the Province created a program to provide loan guarantees
to entities wholly owned by eligible First Nations, Métis and Indigenous communities.
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| Q. |
Why has the program been expanded? |
| A. |
The government announced on November 4, 2021 that it was expanding the program to a broader range of electricity infrastructure projects and
expanding the program envelope to $1 billion. This expansion will allow Indigenous communities to apply to the program for a wider range of
eligible projects, which would help create economic opportunities and jobs for their communities.
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| Q. |
How does the program benefit Indigenous communities? |
| A. |
This $1 billion program is intended to create jobs and promote economic sustainability for Ontario's First Nations and Métis.
The program supports Indigenous participation in new renewable green energy infrastructure like wind, solar and hydroelectric and other electricity
infrastructure projects. By participating in electricity sector projects, Indigenous communities could benefit from jobs and training as projects
are developed and from potential dividends once projects come into service.
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| Q. |
Will the program also benefit non-Indigenous communities? |
| A. |
Yes. Neighbouring communities could also benefit from job creation and economic
sustainability as projects are developed and come into service.
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| Q. |
What if the project isn't viable? |
| A. |
If, following the Province’s due diligence process which includes an assessment of eligibility requirements, a project is determined not
to be viable, the applicant will not receive a loan guarantee.
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| Q. |
What are the financial risks to the Province? |
| A. |
Program administration costs are offset by a loan guarantee fee charged to the borrower.
To protect Ontario taxpayers, the program ensures appropriate risk-sharing among all parties – the Province, the borrower and the financial
institution providing the loan.
To minimize risk, the eligibility criteria and due diligence process are designed to make certain only commercially viable projects qualify for
loan guarantees.
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| Q. |
Why is this program being made available? |
| A. |
Indigenous communities have expressed interest in participating in electricity infrastructure projects, but have identified access to capital as a
barrier. The program is designed to overcome this barrier by guaranteeing loans to commercially viable projects. A loan guarantee is expected to
improve access to financing, as well as, make financing more affordable. This helps create economic opportunities and jobs for their communities.
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| Q. |
In the event of a claim, how
long will it take before the lender receives payment under the guarantee? |
| A. |
The Ministry of Finance will make all reasonable efforts to pay any valid claim in respect of a loan guarantee agreement within 90 days of receipt
of the documentation supporting the claim. The lender must immediately notify the Province of the event of default and may submit a claim if it is
not remedied within the time period allowed under the loan agreement . To date, there have been no claims under the program.
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| Q. |
What are the benefits of partnership? |
| A. |
Ensuring that there are experienced partners in the project demonstrates that the group will be able to operate the facility and take the appropriate
steps to minimize exposure to construction and operational risks. In most cases, it is expected this will involve the creation of a limited partnership
between an Indigenous community and a private developer. The partner could also be a source of additional capital to the project.
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| Q. |
What is the term of the guarantee? |
| A. |
The term of the loan guarantee will reflect the negotiated loan agreement. The final terms and conditions of the loan will be determined based
on negotiations between the borrower, the approved lender and the Province.
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| Q. |
What is considered an eligible
financial institution under the program? |
| A. |
Financial institutions eligible to participate in the program, subject to the Province’s approval, include:
- Schedule I Domestic Chartered Banks,
- Schedule II Foreign Bank Subsidiaries,
- Schedule III Foreign Bank Branches of foreign institutions that have been authorized under
the Bank Act to do banking business in Canada,
- Co-operative financial institutions including Credit Unions and Caisses Populaires, and
- Trust Companies.
Other potential sources of capital may include specialized groups (e.g., involved in infrastructure or Indigenous financing) associated with
insurance companies or pension funds, subject to the Province’s approval.
The above list includes any Indigenous institutions operating in the financial services sector.
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| Q. |
What interest rate will be
charged on an equity loan under the program? |
| A. |
Given the loan would be guaranteed by the Province under the ALGP, it is expected that financial institutions lend money to Indigenous communities to augment
their equity stakes in eligible projects at interest rates significantly below the rates they would offer in the absence of a provincial guarantee.
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| Q. |
Can the guarantee apply
to a project that is 100% equity financed? |
| A. |
Although there are no specific requirements as to how projects should be financed, the
expectation is that the project will have a commercial capital structure that is similar
to other projects being financed at the time. Typically, this will mean that a significant
portion of project costs will be financed by commercial lenders.
The involvement of the commercial lender in financing the project provides additional
assurance that the construction and operational risks are being managed effectively to
the mutual benefit of the investors, lenders and the Province.
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| Q. |
Are entities owned by more than one Indigenous community
eligible for the Aboriginal Loan Guarantee Program? |
| A. |
Entities that are wholly-owned by one or more Indigenous communities are eligible for the program.
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