What can FNFA loans be used for?
Loans serviced through property-tax income can only be used for the financing of economic and community infrastructure related to the provision of local services on reserve land. Loans serviced through other stable, ongoing sources of income can be used for economic and community infrastructure tied to the social and economic development of First Nations, subject to restrictions tied to the income sources. FNFA loans cannot be used to finance business ventures or program operations.
How is the FNFA different from banks?
Typically, government finance authorities such as the FNFA finance large one-time infrastructure and land servicing costs with low-cost, fixed-rate, long-term capital from the capital markets. Local and regional governments use banks to finance operations, housing, short term projects and business activity; interest rates tend to be higher and variable; however decision turn-around time is short and legal costs low for conventional transactions. The relationship is illustrated here.
How does the FNFA loan First Nations money?
The FNFA is modeled after the Municipal Finance Authority of British Columbia. The FNFA loans money by pooling the borrowing needs of many First Nations together. Once a sufficient amount of loan requests have been pooled together, the FNFA approaches investors on the bond market. The investors buy FNFA bonds and the proceeds are then loaned to First Nations.
Are there limits to the amount of money a First Nation can borrow?
No. The amount of money a First Nation can borrow is only limited by the amount of stable, secure, ongoing revenue available to repay the loan.
Does the FNFA collect collateral before it loans to First Nations?
No. The FNFA does not collect collateral and your community does not have to put up any assets as security on the loan.
What happens if a community defaults on its loan?
The FNFA has several safeguards in place to make sure that both First Nations and the bond holders are protected against loan repayment default.
The FNFA has established a Debt-Reserve Fund (DRF) to assist in the event that a First Nation cannot meet a loan payment. The DRF is funded by all the Borrowing Members.