Improve Your Security on Commercial Loans (Part 2)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.
In this previous blog post, we went over one of the methods via which private lenders can obtain additional security on a commercial loan. In this blog post, we will briefly go over another one of these methods.
This type of security is governed by the Ontario Personal Property Security Act (the “PPSA”) and in contrast with a standard commercial loan to a corporate borrower that is secured against a commercial real estate property, a PPSA utilizes personal assets of the corporate or individual borrower of the commercial loan as a collateral.
The collateral items pledged as security in such cases can include but are not limited to accounts; consumer goods; equipment; inventory; motor vehicle(s) and other assets that belong to the corporate borrower.
The reason for obtaining a PPSA against the above-noted assets of the corporate borrower in such cases as an additional covenant to the secured loan against the real property is to ensure that the commercial lender has additional avenues to claim against in the event of default of the loan.
For example, should the value of the real property over which the commercial loan has been secured for some reason turns out to be insufficient to cover the entirety of the loan amount due on repayment or on default, the PPSA once perfected allows the commercial lender in such cases to make a claim on the assets that were secured via the PPSA to make up for any shortfall that may result due to insufficient funds available from the decreased value of the real property.
The PPSA can be secured for a fixed number of years to align with the term of the loan or for an indefinite period but should be discharged once the loan related to same has been repaid in full.
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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