Business loan & financing agreements
Business financing can come with much more than an interest rate. Personal guarantees, security over business assets, financial covenants, and broad default rights can significantly increase what’s at stake if things go wrong. We review the loan, guarantee, and security documents, explain what you’re taking on in plain language, and flag what’s worth pushing back on.
We review the financing documents Ontario businesses are asked to sign: loan and credit agreements, promissory notes, personal and corporate guarantees, and the security that backs them.
Financing documents are written by the lender’s lawyers to protect the lender, and the part that should concern you most is rarely the interest rate. It’s the personal guarantee and the security, the terms that put your own assets, not just the company’s, behind the loan.
Once you sign and draw down, you’re bound by all of it. These are the provisions that most often surprise borrowers:
A personal guarantee can make you personally responsible for the company’s debt if the business cannot pay. Some guarantees are unlimited, while others may be capped or otherwise restricted, so it’s important to understand exactly how far yours goes.
A general security agreement registered under Ontario’s Personal Property Security Act can place a charge over essentially everything the business owns, which the lender can enforce if you default.
A demand loan or operating line can be called by the lender at any time, often on short notice, even when you haven’t missed a payment, very different from a committed term you can plan around.
Financial ratios you must maintain, reporting obligations, and restrictions on further borrowing, dividends, asset sales, or a change of control can limit how you run the business and trip a default even while you’re paying on time.
Broadly drafted defaults, including cross-defaults and “material adverse change” clauses, can let the lender call the entire loan and enforce its security on a single stumble.
Fees, default interest, and prepayment penalties all affect the true cost of borrowing, and the headline rate is rarely the full picture.
Not every routine advance needs a lawyer. A review earns its keep when the exposure is real or the terms are unfamiliar, most often when you’re:
By the time the formal loan package arrives, the key terms, amount, rate, security, guarantees, and covenants, have usually been settled in the term sheet or commitment letter. That is the moment with the most room to negotiate, so the earlier you involve us, the more we can do.
Already signed a commitment letter, or been handed the final documents? We can still review them, explain what you’re committing to, and flag what’s worth raising before funds are advanced.
Send the term sheet, commitment letter, or full loan package, and tell us the amount, the lender, and your timeline.
A plain-language engagement letter setting out exactly what we’ll do, the fixed fee, and by when, agreed before any work begins.
We work through the loan, guarantee, and security documents and assess the obligations, the risks, and anything unusual or one-sided, measured against how you actually operate.
A plain-language summary of the key terms and risks, and specific recommendations on what to clarify or push back on, before you sign and draw down.
You’re not required to, but the loan documents are drafted to protect the lender, and they usually come with a personal guarantee and security over your assets. A review tells you what you’re really committing to and what’s negotiable before the money moves and the terms are locked in.
A personal guarantee makes you personally responsible for the company’s debt, so the lender can pursue your own assets if the business can’t pay. With most small-business lenders it’s hard to avoid entirely, but it’s often negotiable, a dollar cap, a limit to certain assets, or a release once the business hits agreed milestones may be on the table. We advise on the risk and help you push for better terms.
Often more than a bank loan. Private lenders, fintech facilities, merchant cash advances, and factoring arrangements tend to carry more aggressive terms, higher effective costs, broad security, and quick default triggers, and they’re the agreements where borrowers most often get caught out. A review tells you what you’re really signing up for before you commit.
Security gives the lender legal rights over the assets you pledge if the business can’t repay. Under a general security agreement, that can mean a broad range of the company’s assets, including equipment, inventory, accounts receivable, and sometimes future assets, with the lender’s security interest typically registered under Ontario’s Personal Property Security Act (PPSA). If you default, the lender may be able to seize or sell those assets to recover what it is owed. We explain exactly what is being put at risk, how broad the security is, and where there may be room to narrow it.
A committed term loan runs for a set period on agreed terms you can plan around. A demand loan or operating line can be called by the lender at any time, often on short notice, even if you haven’t missed a payment. Knowing which you have, and what can trigger a call, matters a great deal to how you run the business.
Yes, and that’s the best time. The key terms are usually set at the term sheet or commitment letter stage, so reviewing it then gives you the most room to negotiate before everything is formalized.
Yes. It’s better to involve us before you commit, but if you’ve already signed a commitment letter or been handed the final documents, we can still explain your obligations, flag the risks, and identify what’s worth raising before funds are advanced.
Before you put your own assets behind the loan, let’s make sure you know exactly what you’re committing to. The first conversation is on us.
Book a free consultationThe information above is general in nature and is not legal advice. Every situation and transaction is different, and advice tailored to your specific circumstances is required to address your particular needs. If you have questions, contact Align Counsel at [email protected].