Commercial Financing and Security: A London ON Business Lawyer Explains
Commercial financing in London, Ontario runs on details. The business owner sees a term sheet with a clean interest rate and a repayment schedule. Behind those numbers sit covenants, priorities, guarantees, security registrations, intercreditor standstills, and default triggers that can quietly tilt the deal. I have seen promising companies burn a year of runway on a poorly drafted general security agreement, and I have seen lean operators secure growth capital on fair terms because they prepared their assets and paper trail before calling the lender. The difference is rarely just price. It is structure, security, and leverage.
This article walks through how commercial financing actually lands in practice in Southwestern Ontario, what lenders ask for, how security is taken and perfected, and where business owners get trapped. It also touches the way related legal services intersect with growth financing, from real estate to estate planning. Whether you are raising $250,000 against equipment or closing an $8 million asset-backed facility, the same principles apply, just with more zeros and more counterparties.
What lenders really look for
Banks and private lenders read your business in layers. The first layer is cash flow and character, the second is collateral, the third is control. Cash flow, because debt gets paid from operating surplus. Collateral, because businesses have cycles and lenders dislike surprises. Control, because even good borrowers sometimes need a nudge to stay on covenants, deliver reports, and avoid risky dispositions. You can negotiate rate, but you will live with controls.
In London, underwriting criteria are not exotic. A chartered bank will want trailing twelve months’ EBITDA, a business plan with assumptions that tie to historical performance, aged AR and AP listings, tax compliance, and a corporate structure chart. Private credit shops and asset-based lenders push less on EBITDA and more on collateral value and liquidity. realty attorney London They still ask for tax status, insurance certificates, and confirmation that you are not already pledged to the hilt.
Most missed by first-time borrowers is the personal side. Lenders price the deal off the business but often secure themselves with personal guarantees, postponements of shareholder loans, and occasionally a collateral mortgage over personal real estate. Whether that is appropriate depends on leverage and risk. Strong businesses with tangible assets and predictable receivables can often keep guarantees limited or springing. Thinly capitalized companies or early-stage ventures seldom can. A smart negotiation narrows the guarantee to specific facilities, caps it to a percentage, and folds in a burn-off if the business meets performance thresholds for a defined period.
Types of credit facilities and when they fit
Working capital needs a revolving line, not a term loan. Equipment needs a term facility with an amortization aligned to the asset’s useful life. Real estate likes a mortgage with a reasonable prepayment structure. Project finance may involve multiple tranches. The mismatch we see most is a term loan forced to carry operating swing, which creates cash stress and covenant breaches. If receivables cycle every 45 days, an operating line tied to eligible AR, with a borrowing base and weekly reporting, is often healthier than extending payables and juggling term payments.
Despite the acronyms, the facilities themselves are straightforward:
- Operating lines secured by receivables and inventory, with a borrowing base certificate and margining rules, typically priced off prime or CDOR-based equivalents adjusted after the benchmark transition.
- Term loans secured by specific equipment or a general security over all present and after-acquired personal property, amortized over three to seven years depending on residual value.
- Mortgages over commercial real estate, sometimes with a collateral assignment of rents. For owner-occupied properties, lenders may blend business and real estate underwriting.
- Letters of credit and letters of guarantee to support landlord requirements, bonding, or cross-border vendors.
- Subordinated or mezzanine loans, often from private lenders, with higher rates but fewer operational covenants, secured by a second-ranking general security and, commonly, a personal guarantee.
The trick is mapping facility type to cash cycle. A manufacturing shop that ships on 30-day terms but gets paid in 50 to 60 days should not rely on extended supplier credit to bridge the gap. A seasonal business might blend an operating line with a bulge facility that shrinks after peak season. A professional services firm with minimal equipment may avoid a general security agreement altogether by negotiating an unsecured tranche backed by strong recurring revenue and clean financial reporting, though that takes track record and a lender with appetite.
Security: what it means and why it matters
Security is not a moral judgment. It is a tool that sets the order of payment if the music stops. In Ontario, security over personal property is granted and perfected under the Personal Property Security Act (PPSA). Real property is secured under the Land Titles Act through a registered charge. Intellectual property sits in a hybrid world; patents and trademarks can be assigned by way of security, but lenders still register an all-assets security interest provincially and often file at the federal IP offices as a belt-and-suspenders safeguard.
A general security agreement, often called a GSA, grants a floating charge over all present and after-acquired personal property. That includes accounts, inventory, equipment, intangible property, and proceeds. The lender then perfects that interest by registering a financing statement in the Ontario PPSA registry. The priority between competing secured parties is typically determined by the order of registration, with nuances for purchase money security interests (PMSIs), fixtures, and proceeds tracing. When a borrower signs a stack of papers, the GSA is usually the most consequential. It sets the lender’s rights to seize and sell assets on default, appoint a receiver, or require a standstill arrangement.
For equipment financing, a PMSI can give a lender a super-priority in specific equipment so long as the lender registers correctly and within the PPSA timelines. For inventory, PMSIs have stricter rules because inventory turns. If you are a borrower with equipment financed by multiple parties, coordinating PMSIs prevents fights. A sloppy PMSI registration can leave a lender behind a previously registered GSA, and that sparks intercreditor friction. A careful borrower ensures each equipment lender files a targeted registration that references specific collateral, not a blanket claim over all assets.
On the real estate side, commercial mortgages often come with assignments of rents and leases, standard charge terms, and environmental representations that matter more than the interest rate. If a property has potential contamination, lenders either require environmental insurance endorsements or a phase I and, sometimes, a phase II assessment. Failing to address environmental risk early can delay or kill a deal. A real estate lawyer with commercial experience should be looped in before the term sheet is final, not at the moment of closing.
Perfection, priority, and the registry reality
Perfection is legal shorthand for making your security interest effective against third parties. Registration is the usual method. In daily practice, it means someone searches the PPSA registry before funding and spots ten prior registrations, three of which are expired, two are redundant, and one is a serious prior GSA that needs a payout and discharge. The other hiccup is name accuracy. If the corporation’s legal name has a comma out of place or the debtor’s name changed and the registry was not updated, priority can be compromised. We double-check corporate profiles, exact legal names, and registration numbers before filing.
Priority disputes rarely erupt during good times. They arrive when a borrower sells a significant asset or when cash tightens. A first-ranking lender wants payment first from the proceeds. A PMSI lender wants proceeds from its equipment sale. A subordinated lender has to stand back, but wants to ensure the senior lender follows the waterfall in the intercreditor agreement. The documents must talk to each other. For multi-lender stacks, an intercreditor agreement sets payment priorities, standstill periods, turnover provisions, and the rules for enforcement. Borrowers benefit when those terms are predictable and do not give any party a veto that freezes operations unnecessarily.
Guarantees and the family home question
Few topics create more tension than guarantees. Owners feel they already carry the business risk and balk at tying personal assets to corporate debt. Lenders argue alignment. Both have a point. In Ontario, individual guarantors must receive independent legal advice for a guarantee to withstand later challenges. That is not a box-tick; it is a substantive conversation about liability scope, default scenarios, and the guarantor’s right to information. If a spouse co-owns the matrimonial home, the lender may ask for a spousal consent to the charge or to a postponement of rights. A family lawyer may need to review domestic contracts to ensure there is no unintended exposure or to confirm that a spousal waiver is properly executed.
We often negotiate guarantee limits, time-based reductions, or springing guarantees that activate only if covenants are breached. For instance, a $2 million operating line might come with a 25 percent limited guarantee that burns off after two consecutive clean audits and a leverage ratio under a defined threshold. Those terms move when a borrower shows discipline in reporting, compliance, and performance.
Covenants that deserve attention
The covenant package looks dry until it bites. Financial covenants like debt service coverage ratio, leverage, and current ratio are obvious. The operational clauses matter just as much: restrictions on asset sales, negative pledges limiting additional debt, change of control provisions, cross-defaults to other agreements, and consent requirements for material contracts. A borrower that expects to pivot its product mix or that plans to expand into the U.S. must ensure the covenants allow for those moves without seeking consent every few weeks.
Two common friction points:
- Cash sweeps tied to excess cash flow calculations that effectively prevent building reserves. Sometimes a modest cap or a step-down schedule keeps the business nimble without materially harming the lender’s risk position.
- Reporting cadence and detail that strain a small finance team. Weekly borrowing base certificates are manageable for a wholesaler with strong systems, but not for a professional services firm. Tailoring reporting to the business model improves compliance and reduces noise.
Due diligence that pays for itself
Time spent early saves cost later. The due diligence package typically includes corporate minute books, shareholder agreements, existing loan agreements, workplace dispute lawyers PPSA and real estate searches, tax returns and CRA balances, insurance certificates, material contracts, and IP ownership. If your minute book is a mess, clean it before the lender’s counsel looks. Missing director consents or unrecorded share issuances trigger delays and sometimes questions about authority. If you license software or rely on key distribution agreements, have them organized with change-of-control and assignment clauses flagged.
We also scrub for prior security registrations and hidden liens. Equipment vendors occasionally register blanket PPSA claims when they only sold a few assets. Cleaning those off the record before the new lender looks earns credibility and speeds approvals. In cross-border situations, remember that assets in another province or state require separate filings. Ontario perfection does not automatically cover inventory warehoused in Michigan.
Protecting IP and intangibles
Growth companies often have more value in contracts, data, or code than in forklifts. Lenders still want security, and borrowers want to avoid strangling their operations. A balanced approach grants a security interest in intangibles, but carves out customer data privacy obligations, restricts the lender’s right to take assignment of certain government or enterprise contracts without counterparty consent, and ensures escrow arrangements for source code are tailored to enforcement realities. Perfection over intangibles may rely on PPSA registration coupled with specific assignments or notices. Where a business is licensing third-party IP, the lender’s recovery is only as good as the license terms permit, so contract audits matter.
Real estate collateral and environmental realities
In London and across Middlesex County, lenders commonly take collateral mortgages over owner-occupied properties or investment real estate as part of a broader financing package. Beyond title and surveys, practical obstacles include zoning compliance, outstanding work orders, and environmental risk. Even a minor historical spill can trigger lender caution. A phase I environmental site assessment is not a sunk cost; it is an insurance policy for the deal timeline. If your site has any industrial history, plan for the possibility of a phase II and build cushion into your closing schedule.
Landlords play a role too. If your business is a tenant and the lender is advancing an operating line secured by inventory and leasehold improvements, expect a landlord waiver or consent. That document allows the lender to access the premises to realize on collateral if needed. Without it, a default could become a standoff between landlord and lender, with your inventory in the middle. Get the conversation started early with your landlord and provide a clear, limited form that respects the lease.
Intercreditor agreements and the art of sharing security
The moment a borrower stacks facilities, someone has to referee. Senior lenders, subordinated lenders, equipment financiers, and sometimes vendors all have claims. The intercreditor agreement sets who gets paid first, who can enforce, and how long others must wait during standstills. Senior lenders want long standstills and tight turnover obligations. Junior lenders want the ability to step in if the senior lender sits on its rights. Borrowers need flexibility to operate day-to-day without tripping over consent requirements.
A fair intercreditor arrangement recognizes real risk. If a junior lender is writing growth capital at a higher rate, it expects some upside and the ability to recover value from specific assets it financed. Where PMSIs are involved, the intercreditor should expressly preserve those super-priority rights, while clarifying reporting and proceeds application. The most productive negotiations often happen before term sheets are final, when every party still has options.
Defaults and enforcement, without drama
Default is not a single moment. It can be a covenant breach, a missed payment, a material adverse change, or even a default under another agreement that cross-defaults into the loan. Many lenders issue a reservation of rights letter on a minor breach while the borrower cures. The documents matter here. Does the borrower have cure periods? Is there a waiver process? Can the lender increase margins or require additional security after a default is cured? Borrowers should map their compliance calendar and establish early-warning triggers, not wait for a default notice.
If enforcement becomes real, Ontario practice offers tools: demand and notice of intention to enforce security under the Bankruptcy and Insolvency Act, private or court-appointed receiverships, or negotiated forbearance agreements. Quiet, negotiated outcomes preserve value, especially where the business has customers and goodwill worth protecting. Forbearance agreements can exchange time for additional reporting, partial paydowns, or asset sales. If a sale is unavoidable, planning for a transparent process reduces the risk of later attacks on the sale.
A bankruptcy lawyer with commercial experience becomes essential in these moments, to guide strategy and protect directors from personal exposure on items like unremitted HST, source deductions, and environmental orders. The earlier that advice arrives, the wider the path to a consensual solution.
How other legal disciplines tie in
Financing is not a silo. A real estate lawyer who understands commercial charges and environmental diligence can shave weeks off a mortgage-backed deal. An estate lawyer can align shareholder succession plans with lender requirements, ensuring death or incapacity does not inadvertently trigger a default or a change of control. A family lawyer can protect spouses during guarantee and consent processes, preventing costly disputes later. The right London ON law firm will coordinate these moving parts, so a borrower does not pay for multiple firms to relearn the same facts.
We frequently see growth-stage owners put off estate planning. Then a lender asks for a key person life insurance assignment, or a shareholder wants to roll shares into a family trust. Without coordination, a trust reorganization can conflict with negative pledge clauses or trigger a consent requirement. A short call between the business lawyer and the estate planning team solves the problem before it starts.
Practical steps for borrowers preparing to finance
Borrowers who arrive prepared get better terms and faster closes. You do not need a giant finance department. You need disciplined documents, credible numbers, and a clear sense of what you will accept.
Here is a tight checklist we give to London ON clients who are about to engage lenders:
- Confirm your corporate records are current and accurate, including director registers, share issuances, and authorizing resolutions.
- Run PPSA and real property searches on your own business, list all active registrations and charges, and plan discharges or subordinations.
- Assemble trailing 24 months of financial statements, tax filings, and compliance letters, plus aged AR/AP and any borrowing base reports you can produce.
- Map your assets: equipment lists with serial numbers, inventory categories, key contracts, IP registrations, and insurance summaries with loss payee endorsements.
- Decide in advance where you draw the line on guarantees, covenants, and consent rights, so you negotiate confidently rather than reacting under time pressure.
Cost, timing, and what to expect in London
For a straightforward operating line and a term loan secured by a GSA, legal fees for borrower’s counsel in London typically land in a modest five-figure range, depending on complexity, number of PPSA registrations, and whether real property is involved. Add diligence costs like environmental reports or surveys, plus lender’s legal fees, which the borrower usually pays. Expect a four to eight week timeline from term sheet to funding if diligence is clean and third parties cooperate. Complex intercreditor negotiations or multi-property mortgages can push that longer.
Private lenders move faster but charge commitment fees and higher rates. They can be the right bridge when timing matters, provided the exit is realistic. Traditional banks offer lower rates and deeper ancillary services but have tighter credit boxes. A pragmatic business lawyer will help you measure the total cost of funds, including covenants, reporting drag, and flexibility to refinance.
How a business lawyer adds leverage
Your business lawyer does more than mark up a GSA. The value is pattern recognition. When you have seen dozens of borrowing base formulas, you know which assumptions quietly trap cash. When you have fought over landlord waivers, you know which clause will save a midnight standoff. When a lender insists on an all-assets GSA for a small equipment loan, you know how to negotiate a narrower collateral description and a PMSI carveout. And when the deal needs a real estate lawyer, a family lawyer, or an estate lawyer, you bring the right people into the file at the right time, not at the eleventh hour.
At Refcio & Associates, we serve as business counsel to owners across London and Southwestern Ontario. We coordinate with London ON lawyers in adjacent disciplines, handle real estate closings for collateral mortgages, address estate planning implications of guarantees and shareholder agreements, and, when the business hits turbulence, we guide workouts with lenders and trustees. Clients come to us for legal services that connect the dots: corporate, commercial, real estate, and, where necessary, bankruptcy support. The common thread is practical judgment.
Common pitfalls and how to avoid them
Three missteps recur.
First, allowing a general security agreement from a small equipment lender to blanket the business. It seems employment rights attorney harmless at the time because the loan is only $75,000. Two years later, your bank refuses to fund until that registration is postponed or discharged. The equipment lender wants a fee to subordinate, and your deal schedule slips. Insist on a targeted PMSI registration for specific equipment at the outset.
Second, ignoring intercompany balances. Many owner-managed groups move cash between companies. Lenders see that as leakage. They either block it or require a security package and subordination across the group. If intercompany accounts are part of your normal operations, document them and raise the topic early, so the loan structure matches reality.
Third, underestimating the time to secure landlord probate and estate legal help waivers, insurance endorsements, and third-party consents. Landlords and insurers do not move on your closing timeline unless you plan ahead. Build a week or two of cushion and circulate clean draft forms that reflect current market terms. A real estate lawyer can speed landlord conversations by speaking the same language.
When things change midstream
Deals do not always run in straight lines. A buyer shifts closing dates. A supplier tightens terms. Your CFO resigns. Lenders will be more flexible than you think if you communicate early and offer credible alternatives. Maybe the original term loan now needs to be two tranches, with a smaller initial draw and a second draw conditioned on a new hire or a contract renewal. Maybe the borrowing base advance rate needs a temporary bump with a cash dominion arrangement to offset the risk. Creativity inside the four corners of lender policy often lives in the details. Your business lawyer’s role is to propose practical adjustments the credit committee can accept.
The endgame: build optionality
The strongest financing builds future options. That means covenants you can meet in a slow quarter, security you can refinance without handcuffs, and reporting that does not bury your team. It also means aligning personal planning with corporate obligations, so a guarantee does not undermine a family plan, and a shareholder’s exit does not spring a default. Getting there requires time, honest numbers, and counsel who understand how law and finance meet in real businesses.
If you are considering new credit, refinancing, or a restructuring in London, engage counsel early. Talk through the facility mix, security expectations, and what the lender needs to see. Pull your records into shape. Then negotiate the parts that shape your day-to-day reality: covenants, reporting, guarantees, and intercreditor terms. The rate matters, but the paper around the rate often matters more.
Refcio & Associates advises owners and management teams across the region on commercial financing and security, alongside related legal services London businesses routinely need. Whether you are signing your first small line or restructuring a complex stack, a grounded plan and the right legal team can turn financing from a hurdle into a tool.
Address: 380 York St, London, ON N6B 1P9, Canada
Phone: (519) 858-1800
Website: https://rrlaw.ca
Email: [email protected]
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Refcio & Associates is a full-service law firm based in London, Ontario, supporting clients across Ontario with a wide range of legal services.
Refcio & Associates provides legal services that commonly include real estate law, corporate and business law, employment law, estate planning, and litigation support, depending on the matter.
Refcio & Associates operates from 380 York St, London, ON N6B 1P9 and can be found here: Google Maps.
Refcio & Associates can be reached by phone at (519) 858-1800 for general inquiries and appointment scheduling.
Refcio & Associates offers consultative conversations and quotes for prospective clients, and details can be confirmed directly with the firm.
Refcio & Associates focuses on helping individuals, families, and businesses navigate legal processes with clear communication and practical next steps.
Refcio & Associates supports clients in London, ON and surrounding communities in Southwestern Ontario, with service that may also extend province-wide depending on the file.
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Refcio & Associates is open Monday through Friday during posted business hours and is typically closed on weekends.
People Also Ask about Refcio & Associates
What types of law does Refcio & Associates practice?
Refcio & Associates is a law firm that works across multiple practice areas. Based on their public materials, their work often includes real estate matters, corporate and business law, employment law, estate planning, family-related legal services, and litigation support. For the best fit, it’s smart to share your situation and confirm the right practice group for your file.
Where is Refcio & Associates located in London, ON?
Their main London office is listed at 380 York St, London, ON N6B 1P9. If you’re traveling in, confirm parking and arrival instructions when booking.
Do they handle real estate transactions and closings?
They commonly assist with real estate legal services, which may include purchases, sales, refinances, and related paperwork. The exact scope and timelines depend on your transaction details and deadlines.
Can Refcio & Associates help with employment issues like contracts or termination matters?
They list employment legal services among their practice areas. If you have an urgent deadline (for example, a termination or severance timeline), contact the firm as soon as possible so they can advise on next steps and timing.
Do they publish pricing or offer flat-fee options?
The firm publicly references pricing information and cost transparency in its materials. Because legal matters can vary, you’ll usually want to request a quote and confirm what’s included (and what isn’t) for your specific file.
Do they serve clients outside London, Ontario?
Refcio & Associates indicates service across Southwestern Ontario and, in many situations, across the Province of Ontario (including virtual meetings where appropriate). Availability can depend on the type of matter and where it needs to be handled.
How do I contact Refcio & Associates?
Call (519) 858-1800, email [email protected], or visit https://rrlaw.ca.
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