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 consistent.

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 names):

  • 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 borrower;
  • Mortgage(s) over any real property owned by the borrower and/or over real property owned by a guarantor as security for the guarantee;
  • A pledge of shares whereby the financial institution holds the shares in the corporate borrower as security for the loan under certain terms;
  • 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.