Improve Your Security on Commercial Loans (Part 1)By Kormans LLP
With the ever-rising interest rates on commercial mortgages that institutional lenders are providing in the current lending market, many commercial borrowers, including those looking to borrow via a corporation have no choice but to turn to private mortgages as their means for obtaining financing.
When acting for private lenders on such transactions, we often get asked by such private lenders if there are additional avenues available for them to secure the funds that they are lending out.
As a private lender on a commercial loan to a corporate borrower either on a standard mortgage loan; vendor take-back mortgage; or even a promissory note, in addition to securing the loan against the real property for which the loan is being provided to the borrowing corporation, there are a few supplementary ways available to secure such loans.
We will briefly go over one of these methods as part of this blog post.
When lending to a corporate borrower, it is imperative to obtain a personal guarantee from a principal or multiple principals of the corporate borrower. This could be attained by getting a personal guarantee from either all or some of the principal officers of the corporation such as the director(s); president; secretary; treasurer etc. of the borrowing corporation or even all or some of the shareholders of the corporate borrower.
The reason for obtaining the personal guarantee(s) in such cases as an additional covenant to the secured loan against the real property is to further safeguard the interests of the private lender in the event the corporate borrower goes insolvent or is dissolved before the loan is paid out in full.
Moreover, by having the personal guarantee(s) as additional security, the private lender can choose to hold the personal guarantor(s) liable either jointly or severally for the outstanding loan in the event the corporate borrower fails to pay back same.
The personal guarantee(s) can either be for an unlimited amount and carry on for the entire duration of the loan period and any redemption period thereafter OR it can have qualifiers that limit it to a specific amount out of the overall loan amount and expires following completion of a certain number of years in the overall loan term.
Be on the lookout for a future blog post which will outline more methods available to private lenders looking to further improve their loan security on commercial loans!
Please contact us at through phone at (905) 270-6660 or email Info@kormans.ca for more information about this topic! We will be more than happy to assist you with your questions or any other related concerns.
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