Although there are commonalities, no two commercial financings are the same. Typically, your legal counsel is not involved until after you have signed a letter of offer or credit agreement with your bank setting out the business terms of the financing. That said, we are happy to help at this stage with advice regarding the security you are being asked to provide. Where the bank is taking security for their loan, they usually retain legal counsel once the credit agreement is signed.
The bank’s lawyer prepares most of the documents relating to the financing and forwards them to your lawyer. Depending on the complexity and urgency of the financing, the bank’s lawyer may take days or weeks to do the required due diligence and prepare the necessary documents.
Your lawyer will book an appointment with you to review and sign the documents. The type of security the bank will require varies, but may include some or all of the following:
- Mortgage – The bank registers security in the Land Title Office over real property owned by the company;
- General Security Agreement (GSA) – The bank takes security over the current and future personal property of the company (e.g. inventory, receivables, equipment, vehicles, bank accounts);
- Guarantees – You provide your personal guarantee of the company’s obligations to the bank and / or a related corporation provides such a guarantee;
- Postponement of Shareholder’s Loan – Shareholders of the company who have loaned money to the company agree that the bank will be repaid before the shareholders’ loans (or some portion of the loans) are repaid; and
- Priority Agreement – If you have granted security to another lender or supplier, the bank may require the existing lender to agree that the bank’s new security ranks ahead of the existing lender’s, notwithstanding the actual order of registration in the appropriate registry.
You will also be asked to sign corporate resolutions approving the transaction and an order to pay. The order to pay sets out how the loan proceeds will be distributed and usually includes paying out any existing loans, your lawyer’s legal fees, the bank’s legal fees and any applicable loan commitment fees.
Your lawyer will often be required to give an opinion with respect to your corporation. If your lawyer doesn’t maintain your corporate records books, you will need to provide it to your lawyer for review. Your lawyer will have to ensure that your company is in good standing and your annual filings are up to date.
You will sometimes have to meet certain underlying conditions prior to funding, such as providing a survey certificate for real property or proving adequate insurance is in place.
Once all of the documents are in order and the underlying conditions have been satisfied, the bank’s lawyer will register the security (as required) and send the funds to your lawyer, who will then disburse them in accordance with the order to pay. Your lawyer will contact you with the good news that the funds are in your account!
Andrew Brunton is a business lawyer at Pushor Mitchell LLP. You can reach Andrew at 250-869-1135 or [email protected]. Our office offers a wide range of legal services to all types of corporations. For more information on our Business Law Team, please visit pushormitchell.com/service/business-law.
