Internal Long-Term Financing Program

Background

Capital projects are funded from a variety of sources such as donations and government grants, and include long-term financing if necessary. Such financing is obtained from a mix of internal and external funds, the origin of which will be transparent to the internal borrower. This section provides guidelines under which financing is provided.

Program Description

Internal financing is available for approved capital projects upon completion of the project’s construction. This program does not include construction financing which is provided on a short-term basis while projects are under construction.

The Financial Services Department, under the direction of the Chief Financial Officer, will act as the lender and provide internal loans to the University community to finance these projects. Financial Services will determine the terms of the loan, the interest rate, the amortization period and the source of the loan as part of its overall cash management responsibilities.

Divisions entering into loan arrangements will be responsible for the blended equal monthly repayments of principal and interest.

Approvals Required

Please contact Anthony Tia for details at .

Interest Rates for Internal Long Term Financing Loans

Rate Determination: For all capital projects, the interest rate applicable for long-term internal debt financing will be set based on prevailing market conditions. Specifically, it will be based on the Canadian swap curve plus a spread of 150 basis points. This spread reflects the University’s credit rating, the perceived risk of the project, and associated administrative costs— aligning with how financial institutions would price a comparable loan in the open market.

Timing of Rate Determination: The interest rate (swap rate plus spread) for long-term debt will be set at the time the project and the allocation for internal debt long-term financing is presented for Business Board approval.

Term and Amortization Period

Upon project substantial completion, an internal loan agreement will be entered by the borrower for the amount of the long-term internal debt financing as approved by Business Board for the capital project. The long-term loan agreement will generally be structured as 25-year term and 25-year principal and interest amortizing loan calculated at the fixed interest rate determined as above. Exceptions may apply for revenue-generating projects, as outlined below. The Chief Financial Officer (CFO) may also approve alternative terms and amortization periods under special circumstances.

Revenue Generating Projects: For projects expected to generate revenue (e.g. rental income), the CFO may approve a loan agreement to include a stabilization period of up to two years following project substantial completion in order to facilitate the successful and timely completion of the lease-up process. During this period, only interest payments will be required. After the maximum two-year stabilization period, a standard 25-year principal and interest (P&I) amortization schedule will begin, resulting in a maximum loan term of 27 years. This option is not available for academic projects.

The above approach may be revised from time to time by the CFO. In addition, the interest rate stipulated in a loan agreement is subject to change during the term of the loan if deemed necessary by the lender.

The University recommends using a 7% hurdle rate for the modeling of long-term financing costs.

Documentation

For each internal loan, a standard loan agreement will be prepared by the Financial Services Department and will be signed by the Chief Financial Officer and the Head of the division responsible for the principal and interest repayments. An amortization schedule for the loan will be appended to the agreement. Click on the following links for a sample loan agreement and a sample loan amortization schedule.

For more information, please contact the Director, Treasury & Investment Services at 416-978-1202.

Last revision: July 2025