Business Debt Capital5 – Canada Visa IN
Financing a Canadian startup company bank loan process, bank loan application, bank credit evaluation, bank loan approval, bank credit approval, ability to repay loan, borrower credit history, equity, collateral, personal financial information, business financial information, bank loan documentation, loan agreement, note, mortgage, security agreement, personal property security act (PPSA), building relationship with banker, borrow early.

Debt Capital for Business in Canada

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Obtaining Debt Capital for Your Business (Page 5)



DISCLAIMER The information provided here is of a general nature and may not apply to any specific or particular situation. It is not to be considered as a legal advice nor presumed to be indefinitely up to date.


6. Loan Documentation


Once the loan is approved, the entrepreneur should expect to be asked to sign a number of different documents. The language of such documents can be quite tedious. If the stakes are high, the startup should have a lawyer review such documents. The most common documents in a loan transaction are:


Loan agreement


Provides the terms, conditions and promises governing the loan, as well as representations and warranties regarding the loan, collateral, the startup, and anything related to the loan, collateral and the startup. This document may be many pages, and may even be several volumes.




Evidences the actual debt under the loan.




Governs the granting of real estate to secure the loan, as well as conditions and promises governing the loan and mortgage, as well as representations and warranties regarding the loan, the mortgage, the real property described in the mortgage, the startup, and anything related to the loan, mortgage, the real property, and the startup.


Security agreement


Governs the granting to the lender of a security interest in personal property to secure the loan. It also describes conditions and promises governing the loan and security agreement, representations and warranties regarding the loan, the personal property assets, the startup, and anything related to the loan.


Personal Property Security Act (PPSA)


Is a financing statement that being properly documented and recorded with the appropriate agency where the debtor is located, provides creditors priority over other creditors in foreclosing on the personal property put up for security.


7. Building a Relationship with Banker Further


After obtaining a loan, the entrepreneur should cultivate a close working relationship with his or her banker. The entrepreneur should keep the banker informed about the business, thereby improving the chances of obtaining larger loans for expansion and cooperation from the bank in difficult times. In addition to monthly and annual financial statements, bankers should be sent product updates releases and any newspaper and magazine articles about the business. The entrepreneur should invite the banker to the business facility, review product and services development plans and the prospects for the business and establish a personal relationship with the banker. The entrepreneur should never surprise the banker with bad news and always make sure that the banker sees them coming as soon as the entrepreneur does. Unpleasant surprises are a sign that an entrepreneur is not being candid with the banker or does not have the business under proper control.


If the future loan payments cannot be met, the entrepreneur should not panic and avoid his or her banker. On the contrary, he or she should visit the banker and explain why the loan payments cannot be made and say when it will be made. If this is done before the payment due date and the entrepreneur banker relationship is good, the banker may go along. What else can the banker do? If the entrepreneur can convince the banker of the viability and future growth of a business, the banker really does not want to call a loan and lose a customer to a competitor or due to a bankruptcy. The key to communicating with a banker is candidly to inform but not to scare. In other words, the entrepreneur must indicate that he is aware of adverse events and have a plan for dealing with them. To build credibility with the banker further, the entrepreneur should borrow before he needs to and then repay the loan. This will establish the track record of borrowing and reliable repayment. The entrepreneur should also make every effort to meet the financial targets he set for himself and have discussed with the banker. If this cannot be done, the credibility of the entrepreneur will erode, even if the business is growing.


8. Final Notes


(1) Borrow when you do not need it.


(2) Avoid personal guarantees. Put caps and time limits on the amounts based on performance milestones, such as achieving certain cash flow, working capital, and equity levels. Also, don’t be afraid to offer your guarantee and then negotiate ways to get back in whole or in part.


(3) The devil is in details. Read each loan covenant and requirement carefully to appreciate their consequences.


(4) Try to avoid or modify so called hair trigger covenants, such as ?if there is any change or event of any kind that can have any material adverse effect on the future of the company, the loan shall become due and payable.


(5) Be conservative and prudent.