Most CSBFP guides discuss the personal guarantee as if it's a single-person question. In practice, many CSBFP borrowers are corporations with two or more principals, business partners who co-founded the company, spouses who co-own the business, or investor-operators with different ownership percentages.
When multiple shareholders are involved, the guarantee structure, the documentation requirements, and the lender's assessment of the application all change. This post covers how it works.
The statutory guarantee structure
The program does not require a personal guarantee. A lender may choose to take one, and if it does, the Canada Small Business Financing Act and Regulations limit it. What the rules limit is the form the guarantee can take, not a low dollar amount: it must be unsecured, no mortgage, lien, or other collateral against a guarantor's personal assets, and it can be taken for up to 100% of the original amount of the loan disbursed, in aggregate across all guarantors.
This is not a negotiating position. A lender cannot secure the guarantee with collateral, regardless of how the file is otherwise structured. And it is aggregate, not per guarantor: the combined liability of every guarantor on a file, however the lender allocates it between them, cannot exceed the original loan amount.
Single guarantor: If one person owns 100% of the corporation and signs the personal guarantee, that person can be pursued for up to 100% of the original loan, unsecured. On a $400,000 CSBFP loan, the maximum personal guarantee exposure is $400,000.
Two guarantors: If two people each sign the personal guarantee, their combined maximum exposure is still 100% of the original loan, not 200%. On a $400,000 loan, the lender can pursue the two of them jointly and severally for up to $400,000 between them, however it allocates the recovery.
The government's guarantee behind the lender (the 85% government backstop on the lending risk) is separate from the personal guarantee to the lender. Do not confuse these two guarantees, one is the lender's guarantee from the federal government; the other is the borrower's personal guarantee to the lender.
Who must sign the guarantee?
The CSBFP rules do not require anyone to sign a personal guarantee; whether to ask for one, and from whom, is the lender's decision. In practice, lenders that take guarantees typically ask for them from:
- All shareholders who own 25% or more of the corporation: Most lenders apply a 25% ownership threshold, if you own at least 25% of the shares, you sign the guarantee. Some lenders apply a lower threshold (10% or 20%) for their own risk management purposes. These thresholds are lender policy, not program rules (the program's own 25% test concerns revenue from a related business, not share ownership).
- All directors and officers: Regardless of ownership percentage, some lenders require directors and officers to sign. This is common for lenders who want the personal engagement of everyone in a management role.
- Guarantors above the threshold: Some lenders also require spouses of principal shareholders to sign, particularly in provinces where matrimonial property law creates a community property interest in the guarantor's assets.
Minority shareholders below the threshold: A 10% shareholder who is not a director or officer of the company is typically not required to sign the personal guarantee. However, lenders vary on this, ask directly which principals will be required to sign.
How ownership percentage affects the application
A shareholder's ownership percentage affects the application in two ways:
1. The ownership documentation requirement. The lender needs to confirm who owns what percentage of the corporation. For a two-person corporation, this is a share register showing, for example, "Jane Smith: 60 common shares (60%), John Smith: 40 common shares (40%)." For corporations with multiple share classes or complex ownership through holding companies, the lender will trace through the ownership chain to identify the ultimate individual owners.
2. The guarantor assessment. Each guarantor's personal credit and personal financial position is assessed individually. If one of the two principals has a materially stronger personal credit profile than the other, the lender's comfort with the personal guarantee is affected. A file where one principal has a clean 780-score credit history and the other has a recent bankruptcy looks different to a lender than a file where both principals have clean histories, even if both are signing the same unsecured guarantee, aggregate up to 100% of the loan amount.
The documentation each principal must provide
Each person who is required to sign the personal guarantee must provide a full set of personal documentation. There is no shortcut for a minority shareholder or a silent partner, if they are required to sign, the lender needs their complete file:
- Two pieces of government-issued identification
- Personal Statement of Affairs (personal net worth statement)
- 2 to 3 years of personal T1 General returns
- Personal Notices of Assessment (CRA) for the same years
- 12 months of personal bank statements from the primary account
- Signed personal credit authorization
This documentation requirement is sometimes a surprise to multi-principal businesses. A 40% shareholder who expected to be a passive investor discovers at the application stage that they need to provide their personal tax returns, their personal credit history, and their personal net worth. Plan for this before submitting the application.
Structures with holding companies
Many small business owners operate through a holding company ("HoldCo") structure: the HoldCo owns the shares of the operating company ("OpCo"), and the individual owners own the HoldCo. The CSBFP loan is made to the OpCo (the business that owns or uses the eligible assets).
For CSBFP guarantee purposes, the lender traces the ownership chain to the ultimate individual owners, the natural persons. If Jane Smith owns 100% of HoldCo, and HoldCo owns 100% of OpCo (the CSBFP borrower), Jane Smith is treated as the principal and guarantor for CSBFP purposes.
For a two-person HoldCo structure (Shareholder A owns HoldCo A (60%) and Shareholder B owns HoldCo B (40%), and HoldCo A and HoldCo B together own OpCo) the lender will require documentation from both Shareholder A and Shareholder B as the ultimate principals.
Note for lenders and CPA advisors: Some lenders are less familiar with multi-layer corporate structures and may ask for additional documentation to confirm the ownership chain. Having a clean, one-page ownership chart prepared in advance (showing each HoldCo, its individual owner, and the percentage ownership of OpCo) saves time in the credit review.
Practical considerations for co-founders and business partners
Unequal ownership: A 70%/30% split is common in co-founded businesses. Both partners are typically required to sign the CSBFP guarantee. Both receive the benefit of the unsecured requirement, and the aggregate ceiling across both of them is the original loan amount, not the loan amount per partner. The minority partner (30%) is often surprised to learn that their potential guarantee exposure is not scaled down by their ownership percentage, the lender can allocate recovery between the two principals however it chooses, up to the combined ceiling.
Inactive or silent partners: If a shareholder is on the share register but is genuinely passive (no directorship, no officer role, owns less than 25%) lenders may not require their guarantee. But passive ownership above 25% typically still triggers a guarantee requirement at most lenders. If a significant minority shareholder does not want to participate in the guarantee, consider restructuring the ownership before applying.
Spouses as co-owners: Many family businesses have spouses as co-shareholders for estate planning or income-splitting purposes. If the spouse is a director or officer, or owns 25%+, the lender will require full documentation from both spouses. Confirm this structure with your accountant before applying, rearranging share ownership shortly before a credit application can raise questions.
New partner being bought in: If one partner is buying out another (or a new partner is coming in), note that a share purchase is not eligible for CSBFP. CSBFP can only help where the transaction involves eligible costs, such as a purchase of business assets; see partner buyout for how that is structured.
How the guarantee works at default
If the CSBFP loan goes into default and the lender calls on the personal guarantee, the guarantors are liable in aggregate up to 100% of the original loan amount, whether the guarantee is structured jointly and severally or individually. Practically, a lender may pursue all guarantors simultaneously or in sequence depending on asset availability, but the total recovered across all of them cannot exceed the original loan amount.
The guarantee ceiling is fixed on the original loan amount, not on the outstanding balance. On a $400,000 CSBFP loan, the maximum aggregate personal exposure is $400,000, even if the loan has been partially repaid and the outstanding balance at default is only $200,000.
For the CSBFP personal guarantee rules, see the CSBFP personal guarantee page. For the partner buyout use case, see CSBFP for a partner buyout. For the full documentation package lenders require from each principal, see the CSBFP document checklist.
Written by Capital Toolkit