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Ontario|Business LawOther Business Issues 229 Extending credit and credit checks Many businesses extend credit to their customers. This means that the business provides goods or services to the customer without requiring payment right away. The customer then owes the business a debt. Before you extend credit to your customers, you can conduct a number of searches to check the credit record of the borrower and verify whether other lenders have existing claims on their assets. The type of credit search you will need depends on the type of business you are in and the amount of credit you want to offer. The eight most common searches include a search under the Ontario Personal Property Security Act, a credit search at a Credit Bureau, an Execution search, a search under the Bank Act, a corporate search, a bankruptcy search, a search at the Official Receiver's Office, and a Vehicle Record and Driver Record Search. Each of these searches is discussed here.
- Personal Property Security Act search
In exchange for extending credit to your customers, you can take security on the debtor's assets, usually the one you sold to them. This means that if the customer does not pay the debt, you can take possession of their asset, sell it, and take the money you are owed out of the proceeds. Any money received from the sale that is in excess of the amount owed must be returned to the debtor. A Personal Property Security Act search is conducted to determine if there are any registered liens against the personal property of the individual or the business. This is important because the customer may have already used the property as collateral. To conduct this search, you can visit your local land Registry Office, or, if you live in the Toronto area, you can visit the Personal Property Security office at the Ministry of Consumer & Business Services. Their telephone number can be found on the Legal Line Guide or website, or in the Blue pages of your telephone book. There is a small fee for each name or vehicle identification number searched.
- Credit Bureau search
The second type of search is a credit search. A credit search provides information about the credit history and credit rating of the person or business you are searching. It will also give you some information about outstanding loan or credit card payments, if the borrower makes payments on time, and if there are outstanding liens. It will also help you to determine the level of risk involved in giving credit to the customer.
To conduct this search, visit a credit bureau, such as Equifax Canada. Credit information can only be obtained by businesses who are registered members of the credit bureau. Businesses wishing to be members must pay an annual membership fee. It is not possible for individuals to be registered, however, individuals can request their own personal credit check.
- Execution search
The third type of search is an execution search. An execution search reveals whether there is a legal judgment against the person or business being searched. A judgment is a decision made by a court, and means that the court has ordered that person or business to pay a sum of money. The person who is owed money by your customer may have legal claims to their property. Also, if your customer already has a judgment against them, it probably means that they are a credit risk.
To conduct an execution search, you must visit the local Sheriff's office in the area where the person being searched lives, works, or owns property. You will be required to fill out a search form and pay a small fee.
- Bank Act search
A fourth type of search is a Bank Act search. A Bank Act search will reveal whether a bank has taken security on the same property that your customer is trying to give you as collateral. If the Bank does have a claim on the property it means that it has loaned your customer money and that it has the right to take possession of and sell the property if the loan is not paid. This is important for you to know for 2 reasons. First, it shows that the person or business you are going to lend money to already has a debt with the Bank and it therefore may not be in a stable financial position. Second, it will show you if the collateral you are supposed to receive is already secured.
You will need to provide the Bank with the name of the person or business being searched together with a small fee.
- Corporate search
A fifth type of search is a corporate search. A corporate search reveals information about a corporation including the registered corporate name, any registered business names, the date of incorporation, whether the corporation is active, and the names of the directors and officers. This search can be done by visiting the Companies Branch office of the Ministry of Consumer & Business Services in Toronto, or by mailing in a search request, or by conducting a search on the Internet. There is a small fee for each search conducted.
- Bankruptcy search
The sixth type of search is a bankruptcy search which tells you whether the person or company being searched has filed for bankruptcy in the last five to six years. This search can be done by phoning the Bankruptcy Office in Hull, Quebec. There is a small fee for each name searched.
- Search at Official Receiver's office
Next, a search at the Official Receiver's office reveals whether the person or company being searched is or has been a bankrupt. It also reveals whether they have filed a proposal under the Bankruptcy and Insolvency Act.
- Vehicle record and driver record search
Finally, Vehicle Record or Driver Record searches reveal information about vehicles and drivers, such as who owns a vehicle and how many vehicles the person being searched owns. To request these searches, you must complete specific forms that are available at the Ministry of Transportation. There is a small fee for each search conducted.
For more information about business law matters, refer to other sections of Legal Line .
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