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Ontario|Business LawOther Business Issues 232 Borrowing from a Bank and giving security Before loaning money to a business, Canadian banks will, in almost all cases, require a great deal of information and guarantees, such as:
1. Financial statements of the business for at least 1 fiscal year;
2. Credit checks of the Directors and Managing Officers;
3. Personal guarantees from the Directors and / or shareholders;
4. Security interest in the assets of the business;
5. Requirement that the business give quarterly reports and financial statements; and
6. Requirement that the Bank approve any sale of business assets (not including inventory).
If the business is unable to repay the loan, the bank will usually seek payment from the guarantors.
If the guarantors do not pay the loan, the bank can seize and sell the assets of the business and take the money it is owed from the proceeds. Any money remaining after the sale of the assets must be returned to the business. If the business assets are not sufficient to repay the bank loan, the bank can take legal action against the guarantors.
Borrowing money for a business can be complicated and has serious ramifications if the loan is not repaid. Before signing any agreements with the bank, you should seek legal assistance from a lawyer.
For more information about business law matters, refer to other sections of Legal Line .
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