Most companies will go through the process of borrowing funds
from a financial institution at some point in their operations. For
those who have never been through the process before, it can be an
interesting experience. Although the process may differ somewhat
from institution to institution, a number of matters will remain
Generally, the starting point is to meet with your financial
institution to determine the terms of the loan or credit facility
being sought by the borrower and what the financial institution is
willing to provide. Once this has been done, the institution will
provide the borrower with a commitment letter detailing the terms
of the loan and the security required by the institution. As a
borrower, it is important to carefully review the commitment letter
so you are aware of what is being provided and what is required in
order to proceed.
The security requirements will often be unfamiliar territory for
a borrower going through the process for the first time. Depending
on the financial institution and the terms of the loan or credit
facility any one or more of the following may be required
(depending on your institution, these documents may have different
A loan agreement documenting the terms of the loan including
principal, interest, payments, term, events of default, financial
reporting and other matters;
Guarantee(s) whereby the shareholder(s) of a corporate borrower
agree to personally guarantee the debt of the corporate
Mortgage(s) over any real property owned by the borrower and/or
over real property owned by a guarantor as security for the
A pledge of shares whereby the financial institution holds the
shares in the corporate borrower as security for the loan under
An environmental indemnity agreement whereby the borrower
agrees to indemnify the financial institution for any claims,
expenses, costs, etc. arising pursuant to the environmental
legislation in British Columbia; and
A general security agreement providing the financial
institution with security over any personal property owned by the
company (including equipment, etc.).
Once the commitment letter is signed, the financial institution
will prepare the security documents in house or, in most cases,
instruct their solicitor to prepare the documents. Once the
documents are ready, they will be delivered to the borrower or the
borrower's solicitor for review and execution. The borrower is
usually responsible for paying the legal fees incurred by the bank
in the preparation and registration of the security as well as
their own legal counsel's account for reviewing the security
documents. Once the institution's solicitor is satisfied that
all conditions of the loan have been met and with the executed
documentation, any security requiring registration (in either the
Personal Property Registry or the Land Title Office) will be
registered and funds will be advanced.
Specific financial institutions may have different or additional
requirements from the above. This article is intended to provide a
general overview of the process in British Columbia only. The
process may differ in other jurisdictions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances. This article deals with the law
of British Columbia only.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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