Before accepting business financing, review the loan agreement, personal guarantees, security documents, corporate records, commercial lease, and existing borrowing commitments. The documents you need depend on your business structure and the financing proposed.
Borrowing can help a Calgary business expand, purchase equipment, or manage cash flow. However, the paperwork may create obligations beyond monthly payments, including personal liability, security over business assets, and restrictions on future decisions.
Understanding these terms before signing can help you identify risks and decide whether the financing fits your business.
Why Legal Document Review Matters Before Borrowing
Interest rates and monthly payments are only part of the picture. Financing agreements also determine when a lender can demand repayment, which assets secure the debt, and what conditions your business must follow.
For example, a business seeking an equipment loan may discover that an existing lender already holds security over its equipment and restricts additional secured borrowing. Identifying that conflict early gives the business time to address consent requirements before committing.
Key Legal Documents to Review Before Business Financing
1. Loan Agreement or Credit Facility Agreement
The loan agreement sets out the main financing terms. Review the amount borrowed, interest rate, fees, repayment schedule, renewal conditions, and maturity date—the date the remaining balance becomes due.
For variable-rate financing, check how and when the rate can change. Review whether early repayment attracts additional charges.
Pay particular attention to events of default and any right to demand repayment. A default may involve more than a missed payment: failing to provide financial statements or breaching another contractual condition could also trigger consequences.
Check the covenants, meaning promises or conditions the borrower must follow. These may restrict additional borrowing, asset sales, ownership changes, or payments to shareholders.
2. Personal Guarantees
A personal guarantee can make an individual responsible for business debt covered by the guarantee. Incorporation does not automatically protect an owner from obligations under a guarantee they sign.
Check whether liability is capped or extends to the full debt, interest, and enforcement costs. Determine whether the guarantee covers only this loan or also future borrowing, when payment can be demanded, and how the guarantor can obtain a release.
Alberta’s Guarantees Acknowledgment Act may also apply. Where applicable, it imposes acknowledgment and certification requirements involving a lawyer. Confirm which requirements apply before signing.
3. Security Agreements and Collateral Documents
A security agreement identifies the assets offered as collateral and the obligations they secure. Collateral may include equipment, inventory, and accounts receivable—money customers owe the business.
Check whether security covers specific assets or extends more broadly, including assets acquired later. Review existing registrations and whether another lender’s consent or a priority agreement is needed.
In Alberta, many security interests in personal property fall under the Personal Property Security Act. The provincial Personal Property Registry records registrations relating to these interests. Registry searches and legal review can help identify competing claims and potential priority issues.
4. Shareholder Agreements and Corporate Records
Incorporated businesses should review their shareholder agreements, articles, bylaws, and relevant resolutions to confirm who can authorize borrowing and grant security.
Depending on the documents and transaction, director or shareholder approvals may be required. Shareholder agreements may also restrict significant financial commitments, changes in ownership, or issuing shares to investors.
Confirming these requirements early can help prevent financing delays and disagreements between owners. Dimic Law’s business agreements services include assistance with shareholder agreements and other commercial contracts.
5. Commercial Lease and Property Documents
If your business leases its premises, review provisions affecting financing, security over assets, and lender access to equipment. The lender may request a landlord waiver or other agreement, depending on the arrangement.
Check whether landlord consent is required and allow time to obtain it.
If commercial property will secure the financing, review the mortgage, title, existing charges, and related documents. Dimic Law’s commercial real estate legal services address legal matters involving commercial property transactions and financing.
6. Existing Loan Agreements and Financing Commitments
Review existing loans and credit facilities before accepting additional financing. They may restrict further borrowing, granting security, or making certain business changes.
Look for cross-default provisions, which can allow a default under one agreement to trigger consequences under another. Check whether refinancing requires repayment, discharge of existing security, or additional fees.
The proposed financing should be assessed alongside existing obligations so that signing one agreement does not put the business in breach of another.
Questions to Ask Before Signing a Financing Agreement
Before committing, ask:
- What is the total borrowing cost, including fees?
- Which assets secure the debt?
- Does any personal guarantee cover future borrowing?
- Can the lender demand repayment even without a missed payment?
- What reporting requirements and business restrictions apply?
- What happens after a default, and is there time to correct it?
- Are corporate approvals, landlord consents, or existing lender approvals required?
Ask for clarification on unclear terms before signing a commitment letter or financing agreement. Preliminary documents can also contain binding obligations.
How a Business Lawyer Can Help
A business lawyer in Calgary can review the proposed financing alongside your existing agreements, explain obligations, identify terms that may warrant negotiation, and assess guarantees and security arrangements.
Dimic Law’s corporate financing legal services can help businesses address financing documentation and related legal requirements. Reviewing the documents early allows time to resolve questions, obtain approvals, and understand personal exposure before the transaction closes.
Review Your Financing Documents Before You Sign
Business financing can support growth, but its terms can affect your assets, personal liability, and future decisions.
If you are considering a business loan or credit facility,
contact Dimic Law
about reviewing your loan agreement,
personal guarantee, and security documents before signing.
