Last week's 2024 Federal Budget confirmed the creation of a Federal Indigenous Loan Guarantee program. The newly announced Indigenous Loan Guarantee Program aims to support investment in natural resource and energy projects with potential for increased Indigenous equity ownership in major natural resource and energy projects.
The new program will provide up to $5 billion in loan guarantees to unlock access to capital for Indigenous communities to create economic opportunities and support economic development priorities. Loans would be provided by financial institutions or other lenders and guaranteed by the Government of Canada. Borrowers will benefit tremendously from the federal government's credit ratings, which will provide access to better loan terms, including lower interest rates.
About loan guarantee programs
Government loan guarantee programs typically provide a guarantee to lenders, such as banks or financial institutions for loans extended to businesses or individuals. By providing a guarantee, the government agrees to cover a portion of the lender's losses in the event that the borrower defaults on a loan. The guarantee serves as risk reduction for lenders. The reduced risk encourages lenders to provide loans to borrowers who may not otherwise have access to traditional financing options, larger loan amounts or more favourable interest rates.
These programs are favourable to Indigenous individuals and communities as it provides entrepreneurs and businesses the ability to secure loans to start or expand their ventures, or to invest in large-scale projects and obtain equity interest. By facilitating access to capital, loan guarantee programs can help Indigenous communities overcome financial barriers and support a broad range of economic development initiatives. Prior to the federal program announcement, Ontario, Saskatchewan, Alberta and most recently British Columbia have previously established Indigenous Loan Guarantee programs.
How will the new program work?
The proposed Federal Indigenous Loan Guarantee program recognizes Indigenous governments and their wholly owned and controlled entities as eligible applicants. The program supports projects across Canada and is intended to be sector-agnostic to prioritize economic reconciliation and self-determination while supporting natural resource and energy projects.
Natural Resources Canada will manage intake and capacity building, while a new subsidiary of Canada Development Investment Corporation (CDEV) will be established to provide due diligence assistance for applications and to administer the portfolio of loan guarantees. Budget 2024 also proposes to allocate $11.5 million over two years to Natural Resources Canada for capacity funding and support for Indigenous communities and loan applications, as well as the delivery of the program by CDEV.
Approval of the budget is still pending. As such, the Federal government has yet to release more details about when the program will be open for applications and any eligibility requirements, application assessment criteria and reporting requirements, if any. This newsletter will be updated once more information is released.
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