Frequently Asked Questions - Ministerial Loan Guarantees
Q1. What is a Ministerial Loan Guarantee (MLG)?
A1. An MLG assists First Nations in accessing loans for on reserve housing. It is collateral for a loan which provides security for the lender. This means that in the case of a loan default, the lender will not lose any money.
Q2. Why are Ministerial Loan Guarantees necessary?
A2. MLGs are required because reserve lands are held by the Crown and cannot be mortgaged, which means they cannot be used as collateral. AANDC issues MLGs to lenders to secure on-reserve housing loans in order to minimize risk in the case of a loan default.
Q3. When are Ministerial Loan Guarantees required?
A3. MLGs may be required whenever financing is requested from a financial institution for the construction, acquisition or renovation of houses on reserve, specifically for First Nation housing projects and individual home ownership.
Q4. What happens if a First Nation or individual defaults on their payments and the lender makes a claim for payment under the terms of the Guarantee Agreement?
A4. AANDC may decide to pay off the remainder of the loan to the lender. The borrower then has a debt owed to the Crown. AANDC recovers the funds from First Nations through various means. A First Nation may recover these funds from the individual borrower or impose other conditions as per the agreement between that borrower and the First Nation.
Q5. What are the eligibility criteria to apply for an MLG?
A5. The First Nation is required to:
- have a satisfactory record of managing previous AANDC-funded housing projects, whether for new constructions or renovations. This is verified by the AANDC regional officer responsible for MLGs based on previous year(s) performance
- meet all capital reporting requirements as per the First Nation's funding agreement. This will be verified by the AANDC regional officer responsible for MLGs
- meet environmental requirements as per the Canadian Environmental Assessment Act (CEAA) or Yukon Environmental and Socio-economic Assessment Act (YESAA)
- have received written confirmation from the AANDC's regional officer responsible for the verification of lands status that:
- the land is eligible
- the Band Council Resolution (BCR) submitted confirms that the land of the project site is under the control of the First Nation and
- there are no encumbrances or charges on the land that would prevent its use for residential purposes
- have received confirmation by AANDC that the First Nation's annual audited consolidated financial statements, as set out in AANDC's year end reporting guide, have been accepted by AANDC at the initial review stage.
- ensure that the First Nation is well managed and has a satisfactory record of meeting financial obligations in accordance with the following:
- where the Department has required the First Nation to develop and implement a Management Action Plan (MAP) in accordance with the Directive on Default Management, the First Nation may be considered eligible for an MLG only if a MAP is in place and has been operating effectively for at least the last six consecutive months
- if the First Nation has defaulted on a loan and the loan has been paid out by the Minister, the First Nation may be eligible to apply for a MLG on new loan only after an acceptable debt recovery plan has been operating effectively for at least the last six consecutive months and
- none of the First Nation or its member(s) MLGs are subject to a Claim for Payment
- have a Band Council in place (if the First Nation is under third party management, no MLG will be issued).
Q6. Once an MLG application has been submitted, how long does it take for a First Nation to receive an MLG?
A6. Once all required documentation has been submitted to support a First Nation's MLG application, the review process takes approximately six weeks if all eligibility criteria have been met.
Q7. Is it possible to have two MLGs for the same project?
A7. No, it is not possible to have more than one MLG per project.
For more information, please consult the Ministerial Loan Guarantee Manual.