| There are various types of secured lending in the | | | | case scenario when a bank has determined it |
| Canadian business environment. Let's examine | | | | needs to 'call the loan ', terminology most business |
| some of those secured loans and discuss some | | | | owners know too well but hope they never have |
| of their characteristics. | | | | to live through. The bank is in effect, at that time, |
| When most business owners or financial | | | | attempting to crystallize on its loan. In securing |
| managers think of secured lending they are | | | | the loan we spoke of the bank or other lending |
| thinking in terms of their operating loans or | | | | institution taking an assignment of the assets. |
| operating lines of credit, sometimes called ' | | | | Now that the loan has been called an actual |
| revolvers' in finance language. | | | | assignment is enforced - customers are notified |
| These loans are used to financing working capital, | | | | by the bank and monies are collected by the |
| primarily receivables and inventory. In taking and | | | | bank to reduce the loan outstanding. The bank |
| registering this security the bank or some similar | | | | now finds itself in a position of having to deal with |
| financial institution will take an assignment of these | | | | the inventory they did not want to deal with, and |
| 'liquid assets' of the company. On occasion | | | | we typically find that the inventory is directed to |
| customers will hear the term ' demand loan ' and | | | | be sold by an auctioneer or salvage firm, who |
| we are in effect talking about the same thing. | | | | acts as a temporary agent for the bank. |
| How does the bank or other institution secure the | | | | When loans are enforced in such a manner the |
| loan? They register what is known as a General | | | | results are usually disastrous for the customer |
| Security Agreement, commonly called a 'GSA | | | | and have a major impact on the company's ability |
| 'against the business. In determining their security | | | | to go forward. |
| and overall all 'credit limit' with the customer they | | | | Lenders securities agreements in Canada are all |
| usually agree to advance against 75% of all good | | | | registered under Canada's Person Property |
| receivables, and some component of inventory. | | | | Security Act, and are in effect public knowledge |
| We can, as a general rule, say that banks don't | | | | for those that wish to investigate secured |
| really like inventory - simply because they aren't | | | | dealings. This process is very similar to the |
| set up to liquidate on it when they have to. | | | | UNIFORM COMMERCIAL CODE (UCC) that exists |
| If everything goes well that is as much as the | | | | in the U.S., and in fact the security legislation in |
| business owner really needs to know. The loan is | | | | Canada was very closely model to the U.S. way |
| secured, the bank registers a public security | | | | of secured lending notification. |
| against the company, and the company has | | | | There are other forms of secured lending Vis Vis |
| access to working capital. | | | | equipment, debentures, and security is generally |
| How does the Secured Lender realize on the | | | | handled in the same manner re: registration, etc. |
| security? Again, we are talking about the worst | | | | |