- About Investment Loans
- Underwriting Criteria
- The Application Process
- EASE Online Application
- Funding & Investment Purchases
- Loan Payments
- Margin Warning / Call
- Account Statements
What is an investment loan?
An investment loan is a loan that is used to purchase mutual or segregated funds. The purchased funds (or in the case of segregated fund loans, the annuity contracts) are held as collateral which secures the loan, much the same way as a house is used as security for a mortgage loan. With an investment loan, the lender holds the funds on behalf of the borrower until such time as the loan is repaid in full.
What type of individual is best suited for an investment loan?
Generally, the ideal loan candidate has a higher risk tolerance combined with an appetite to increase their exposure to the market. They should have a good credit history, their debt levels under control and be committed to a long-term investment strategy. Of course, the decision to apply for an investment loan is one that should be made by an investor after consulting with a financial advisor.
What are the risks of borrowing to invest?
A leveraged purchase of mutual or segregated funds involves a greater degree of risk than a similar purchase using cash resources only. The reason for this is that if the value of the investment falls, the borrower suffers a loss of value beyond what they may have experienced had they invested with only their own money.
For example, on a 2 For 1 Loan where investors pledge $50,000 and borrow another $100,000, if the investment drops in value by 10%, the numbers would look like this:
On the investors' portion of the investment, $50,000 less 10% = $45,000, they've lost (so far) $5,000. Had they ONLY invested with their own money, their loss would be fixed at $5,000. However, when you include the investment from borrowed funds, $100,000 less 10% = $90,000, an ADDITIONAL $10,000 is lost.
Borrowers are also responsible for loan payments irrespective of the performance of their investments. In other words, should an investment drop in value, not only does the borrower lose on the investment, but they are also still required to repay the loan in full.
What types of loans are available through B2B Bank's Investment Loan Program
There are 4 different loan products offered through our investment loan program: 100%, 3 For 1, 2 For 1 and 1 For 1. Each comes with either a no margin call or a lower-priced margin call feature. Each loan product also offers a choice of monthly payment type: interest only or principal and interest.
|Client’s portion||Borrowed amount||Total amount invested|
|B2B Bank finances 100% of the investment||$0||$150,000||$150,000|
3 For 1
|B2B Bank lends up to 3 times the dollar amount pledged (in cash or in kind)||$37,500||$112,500||$150,000|
2 For 1
|B2B Bank lends up to 2 times the dollar amount pledged (in cash or in kind)||$50,000||$100,000||$150,000|
1 For 1
|B2B Bank matches the dollar pledged (in cash or in kind)||$75,000||$75,000||$150,000|
Are there any fees associated with B2B Bank investment loans?
There are no annual or administration fees associated with our investment loans. However, for segregated funds, borrowers are charged the applicable provincial fee to register, renew and/or discharge (if applicable) a security interest in the segregated fund, under applicable personal property security legislation. The initial registration fee will be added to the borrower's first scheduled payment and any future cost for renewal or discharge will be charged to the borrower at that time. B2B Bank charges a $50 fee for any returned items.
NOTE: A fee schedule does apply to investment accounts held with B2B Bank Dealer Services1. The fee structure for clients' investment accounts is much like the current B2B Bank investment loan fee model, with no annual administration fees and no applicable transfer-out or estate settlement fees. Certain fees will apply to client-initiated sundry or transactional services. To download the investment account fee schedule, go to b2bbank.com/dealerservices.
What underwriting criteria does B2B Bank use when deciding to lend to an individual?
Because every individual's situation is unique, we take a holistic approach to underwriting. Some of the key criteria we consider include:
- Total debt service ratio (TDSR): ): the applicant's regularly recurring monthly debt payments (including the new loan payment) should be less than or equal to 40% of their gross monthly income.
- Net worth: the applicant's tangible net worth is calculated by subtracting their total outstanding liabilities (debt obligations) from the total of their verifiable assets. For 100% investment loans up to and including $100,000, net worth should be less than or equal to 1 x the loan amount. For 100% investment loans greater than $100,000, net worth should be greater than 1.5 x the loan amount. For 100% investment loans greater than $250,000, net worth should be greater than 2 x the loan amount.
- Credit history: all obligations must be up-to-date and paid as agreed – no bankruptcies, collections or judgements.
TDSR for 100% Loans should not be greater than 40%. TDSR will be calculated for 3 For 1, 2 For 1 and 1 For 1 Loans but will not solely determine credit decision. In all cases, additional documentation may be requested at the discretion of B2B Bank.
In addition to income and net worth, what else should be considered when assessing whether a client will qualify for a loan?
To help determine whether your client is "credit worthy" consider:
- whether they have established a file at the credit bureau;
- if they regularly pay their bills on time;
- if they can comfortably afford their obligations with money left over after meeting their living expenses.
How can I obtain an Investment Loan Application?
A fillable B2B Bank loan application can be obtained by clicking here. Paper applications can be ordered by filling out our Material Request Form and faxing it to 416.865.5709. Please contact our Distribution Alliances directly for their program applications.
In addition to the Investment Loan Application are there any other documents that B2B Bank requires?
Yes, B2B Bank requires the following:
- Void cheque from the client's personal account.
- Letter of Direction (included with the loan application). This form is required only if paying out a loan at another financial institution.
- Pledge Letter (included with the loan application) and/or cheque payable to B2B Bank, B2B Bank Financial Services Inc., B2B Bank Securities Services Inc. or B2B Bank Intermediary Services Inc. (whichever is applicable). The Pledge Letter is required if paying out a loan at another financial institution, or if your client is pledging collateral on a 3 For 1, 2 For 1 or 1 For 1 Loan.
- If pledging cash or eligible fund collateral (not related to a payout), these transactions must be added to a new or existing investment account prior to the funding of the loan. When opening a new investment account for the purposes of pledging cash or eligible fund collateral prior to the funding of the loan, a complete investment account application must be submitted to B2B Bank Dealer Services. Alternatively, you may open the investment account via Advisor Access. Not applicable to investment accounts at B2B Bank.
- Moveable Hypothec (Quebec only).
For Distribution Alliance mutual fund loans, also include:
- Letter of Privilege (for the B2B Bank Select Loan Program and the B2B Bank Distribution Alliance Loan Program).
For Distribution Alliance segregated fund loans, also include:
- Notice of Investments (included with the Distribution Alliance loan application) and/or cheque payable to B2B Bank. The Notice of Investments is required if paying out a loan at another financial institution, or if your client is pledging collateral on a 3 For 1, 2 For 1 or 1 For 1 Loan.
- Assignment, Hypothecation, Acknowledgement and Direction (included with the Distribution Alliance loan application).
- Original application to the insurance company.
Proof of income and assets
Refer to required income and asset document list available at b2bbank.com/loandocs
Does B2B Bank accept faxed applications?
B2B Bank will accept faxed applications for adjudication purposes only. Original loan documentation is required to fund the loan.
Where should the original investment loan application and required documentation be sent?
Be sure to forward all original completed, signed and witnessed loan documents to: B2B Bank, Investment Lending, 199 Bay Street, Suite 600, PO Box 279 STN Commerce Court, Toronto ON M5L 0A2. Please include the EASE transaction and pledged account numbers (if available) on all mailed documentation..
When will I be notified that my client's loan has been approved or declined?
B2B Bank will email and/or fax approved/declined/delayed notification to your office typically within one business day upon receipt of the application. Delays are usually the result of missing information or if further clarification is required.
What is EASE?
EASE stands for Electronic Application Submission Entry. It's B2B Bank's secure, online loan application that allows you - the advisor - to enter, save, print and submit investment loan applications on behalf of your clients.
- fast: offers your clients a loan application status in a matter of seconds;
- easy to use: screens are intuitive – both easy to navigate and complete;
- practical: search functions allow you to retrieve existing applications and monitor their status;
- useful: you can generate a variety of reports for information at your fingertips.
How does EASE work?
In short, advisors log in to the EASE site (new users can register online) and enter their client's information. When all pages have been completed, advisors print the application and have the client sign where required. By clicking the Submit for Credit Review button, the application is submitted electronically for adjudication; a status is emailed and/or faxed to advisors. If approved, advisors then forward the printed application, with the original signatures and all supporting documentation, to B2B Bank for funding. If the status of the application is Under Credit Review, advisors are contacted with a decision typically within one business day by email and/or fax.
What happens if I save a loan but don't complete all the fields
That's okay. EASE allows you to come back and complete the application later. An application can be saved as soon as a single character is entered by clicking on Save This Data.
A loan application that I entered is in duplicate status. Why?
EASE has identified an application in its database with the same client name, social insurance number (SIN), or date of birth. A B2B Bank underwriter will review the application to determine whether it is a true duplication or a new application for the same client. If it is a new application, the underwriter will adjudicate the application.
Why is an application "pending" even though all information was completed and submitted?
This message appears when B2B Bank requires additional supporting documentation in order to complete the adjudication process. You will receive an email and/or fax B2B Bank Client Services with further details.
What happens if I've already completed and saved my application but want to make changes?
You can make changes prior to clicking on the Submit for Credit Review button. The application that the client signs must accurately reflect what is being submitted electronically for credit review. After the loan has been submitted, you may contact B2B Bank to discuss additional changes. Note that B2B Bank must receive original initials authorizing any changes made to the application.
When will the loan be funded?
The loan will be funded typically within one business day upon receipt and verification of the original loan documentation
How will mutual fund investments be purchased?
For mutual fund investment loans, funded proceeds will be advanced into the borrower(s) new or existing B2B Bank Dealer Services investment account, where you will have the responsibility to invest the funds according to your clients' instructions. Special note for B2B Bank Dealer Services investment accounts: The applicable B2B Bank dealer investment account application should be completed with your client and maintained in your client's file. A new investment account will automatically be created at the time of funding if an account does not already exist.
How will segregated fund investments be purchased?
For segregated funds investment loans, funded proceeds will be advanced into the borrower(s) B2B Bank new investment account, where B2B Bank will place the trades according to the instructions on the original supporting insurance application.
Which mutual and segregated fund units can be purchased with borrowed money?
B2B Bank currently lends on a majority of Canadian investment industry assets. We also regularly review the criteria that determine qualifying collateral for each of our loan types. Retail Venture Capital, Alternative Strategies and Specialty (including Principal Protected Notes) do not qualify for any of our products. Please be aware that all funds must be valued in Canadian currency to be eligible. In the case of segregated funds, a Distribution Alliance agreement must also be in place with the life insurance company.
Are GMWB segregated funds eligible?
Yes, B2B Bank offers a GMWB segregated fund investment loan. However, the GMBW funds selected for pledge or purchase must meet B2B Bank's collateral eligibility criteria and a Distribution Alliance agreement must be in place with the life insurance company.
Is there any particular day of the month that loan payments must be made?
Not at all. We try to accommodate all of your clients' needs. As such, borrowers may select any day of the month – from the 1st to the 28th – whatever is most convenient for them. Flexible payment dates can be helpful to your clients when it comes to managing their monthly cash flows.
Can a borrower make lump sum payments or increase their monthly payment amounts?
Borrowers can make lump sum payments whenever they choose at no additional charge or penalty. Should they wish to increase their monthly loan payment amount, written instructions directing us to increase their payment must be provided on B2B Bank's Pre-authorized Debit Agreement form. Payment decrease requests are considered on a case-by-case basis.
Are monthly loan payments affected if there is a change in the Prime Rate?
There are typically no changes made to the loan payment amount during the year unless requested by the borrower. This is a real benefit for those managing their cash flow on a monthly basis. Interest only payments may be adjusted at least annually to reflect changes in the outstanding principal of the loan and the Prime Rate. Although changes to interest only payment amounts typically occur in January and usually remain fixed for the entire calendar year, we reserve the right to adjust payments at any time if the Prime Rate changes significantly.
Can borrowers pay off their investment loan at any time?
Yes, they can. To pay off a loan, the account holder can send a cheque payable to B2B Bank for the full amount outstanding, or direct us to redeem the security held as collateral for the loan. All loans can be paid out at any time without any additional charge or penalty from B2B Bank.
What happens to the mutual fund collateral once the loan is paid in full?
If the borrower pays the loan from their own resources, the collateral held as security by B2B Bank Dealer Services will remain in the clients' investment account. If the borrower chooses to pay the loan by redeeming the funds held as security by B2B Bank Dealer Services, any surplus that remains after the trades have settled will be sent by cheque to the borrower. If there is a deficiency balance, it will be necessary that the borrower make arrangements to pay it in full. For B2B Bank Dealer Services investment accounts, the fee waivers in effect when the account is linked to an active loan will be honoured for a period of 90 days. After the 90 days period, the full investment account fee schedule will apply.
What happens to the segregated fund collateral once the loan is paid in full?
If the borrower pays the loan from their own resources, the collateral held as security by B2B Bank will be re-registered into the client's name. If the borrower chooses to pay the loan by redeeming the funds held as security by B2B Bank, any surplus that remains after the trades have settled will be sent by cheque to the borrower. If there is a deficiency balance, it will be necessary that the borrower make arrangements to pay it in full.
My client received a margin warning. What do I need to do?
Your client does not need to take any action when their account is in a margin warning position; notices are sent to alert you and your client that the loan-to-value ratio of the investment loan has risen and that if the trend continues, it may result in a margin call. When a margin warning is received, you can use it as an opportunity to discuss potential next steps with your client.
What happens in a margin call situation?
You will receive notification if your client's loan reaches a margin call. At this point, your client must take action to reduce the loan-to-value ratio. They have a couple of options to remedy the situation: they may either provide B2B Bank with additional mutual fund collateral, they can pay down the loan balance by sending a cheque payable to B2B Bank or they can convert to a 2-year fixed term (not applicable for Quebec residents).
Will the borrower receive any reports on the status of their loan account?
B2B Bank is committed to keeping advisors and their clients informed of all account transactions. Clients will receive quarterly loan statements and year-end investment loan statements (including interest expense totals) in mid-January .
What should I do if I have questions or would like more information?
If you would like more information on any aspect of B2B Bank's Investment Loan Program, simply call one of our client Service Representatives at 1.800.263.8349. We're here to help you get the answers you need. Our Client Service Representatives would be happy to assist you Monday to Friday from 8 a.m. to 8 p.m. ET.
¹B2B Bank Dealer Services includes B2B Bank Financial Services Inc. (an MFDA member), B2B Bank Securities Services Inc. (an IIROC member, Member — Canadian Investor Protection Fund) and B2B Bank Intermediary Services (an AMF-regulated dealer operating in Quebec). B2B Bank is a trademark used under license. ²Once a loan is paid in full, clients have 2 (two) options: they can either retain or close their investment account. For a period of 90 days after the loan pay-out, the investment account annual administration and transfer-out or estate settlement fees will be waived; however, after that 90 day period, our full fee schedule will apply.