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Loan & Financing Documents in Ontario
A practical guide to loan agreements, promissory notes, security, personal guarantees, interest, repayment and the documents behind business financing.
Business financing is not just about how much money is available. The documents determine when the money can be used, what it costs, what the borrower must continue doing, what property supports repayment and what can happen after a default.
Prepared by Tatyana Trusz, Trusz Law • Updated July 2026 • 14 min read
QUICK ANSWER
What documents are used for a business loan?
A business financing package often uses several documents because each one answers a different question. The loan or credit agreement sets the main economic and legal terms. A promissory note may evidence the debt. A security agreement can give the lender rights in business property, while a PPSA financing statement gives public notice of a security interest. A personal or corporate guarantee can make another person or entity responsible if the borrower does not pay.
The borrower should understand the documents together. A low headline interest rate can still come with significant fees, restrictive covenants, broad security, personal exposure or default rights that materially change the risk of the financing.
IN THIS GUIDE
RELATED BUSINESS LAW
REVIEWING FINANCING?
Understand what the business is promising—not just what it is borrowing.
Review the repayment terms, security, guarantees, covenants and default rights before the money is advanced.
THE FINANCING PACKAGE
What do loan and financing documents actually do?
A financing transaction separates one commercial idea—“the business is borrowing money”—into a series of legal questions.
The documents may need to answer:
- How much money is available, and can it be drawn all at once?
- What is the interest rate, and what other fees affect the cost?
- When must principal and interest be paid?
- Can the borrower repay early?
- What financial information must be delivered while the loan is outstanding?
- What actions require the lender’s consent?
- What property secures repayment?
- Is an owner, parent company or related company guaranteeing the debt?
- What events count as default?
- What can the lender do after default?
A financing arrangement should be reviewed as a system. The repayment schedule may look manageable while the covenants are not. The company may understand that equipment is collateral while the security agreement reaches substantially all business assets. The owner may think a guarantee is limited while the document says otherwise.
KEY TAKEAWAYS
At a glance
- The loan agreement, security documents and guarantees should be reviewed together.
- A secured loan gives the lender rights in identified property; a PPSA registration can help protect priority against competing interests.
- A financing statement is not the same thing as the underlying security agreement.
- Fees, commissions and other charges can matter when assessing the real cost of credit—not only the stated interest rate.
- Borrowers should pay close attention to covenants, events of default, acceleration rights and personal guarantees.
- Refinancing or paying out an existing lender may require searches, payout statements, releases and discharges of registrations.
DEAL STRUCTURE
Secured loan or unsecured loan?
An unsecured loan relies primarily on the borrower’s promise and creditworthiness. A secured loan also gives the lender rights in specified collateral to support repayment.
| Question | Unsecured financing | Secured financing |
|---|---|---|
| Collateral | No specific security interest is granted under the financing documents | The borrower or another grantor gives a security interest in identified property |
| Lender focus | Cash flow, creditworthiness, contractual payment rights and guarantees if any | Cash flow plus collateral value, priority, registrations and enforcement rights |
| Common documents | Loan agreement or note, possibly a guarantee | Loan agreement, security agreement, PPSA registrations and possibly guarantees or other collateral documents |
| Borrower concern | Default and collection exposure | Default exposure plus the lender’s rights against collateral and the impact on future financing |
“Secured” does not necessarily mean a lender is secured only by the asset being financed. Some facilities use specific security over equipment or receivables; others use broad security over substantially all present and after-acquired personal property. The actual wording matters.
COMMON FINANCING DOCUMENTS
What is the difference between a loan agreement, promissory note, security agreement and guarantee?
| Document | What it usually does |
|---|---|
| Loan or credit agreement | Sets the principal terms: availability, interest, fees, repayment, covenants, defaults, conditions and remedies |
| Promissory note | Contains a written promise to pay a debt on stated terms; it may be used alone in simpler arrangements or alongside a larger financing package |
| Security agreement | Creates contractual security rights in identified collateral and usually contains promises about the collateral |
| PPSA financing statement | Registers public notice of a security interest in Ontario’s PPSR system; it is not a replacement for the underlying security agreement |
| Personal guarantee | Makes an individual responsible for guaranteed obligations if the borrower does not perform, subject to the wording of the guarantee |
| Corporate guarantee | Makes a parent, affiliate or related entity responsible for another company’s obligations |
| General security agreement | A form of security agreement that may cover broad categories of the debtor’s personal property rather than one specific asset |
| Subordination or priority agreement | Sets the ranking or payment relationship between creditors where more than one lender or claim is involved |
| Intercreditor agreement | Coordinates rights, priority, enforcement and distributions among multiple secured creditors |
A lender may also require corporate resolutions, officer certificates, legal opinions, insurance evidence, landlord waivers, assignments, direct agreements or other closing deliveries depending on the transaction.
KEY LOAN TERMS
Twelve financing terms a business should understand before signing
1. Facility amount and availability
Is the full amount advanced at closing, drawn in stages or available as a revolving line? The agreement may impose borrowing-base formulas, draw conditions or a commitment period after which unused availability disappears.
2. Purpose of the loan
Financing documents often restrict how borrowed money can be used. Equipment financing, acquisition financing and working-capital facilities may each have different permitted uses.
Using funds outside the permitted purpose can create a breach even if payments are current.
3. Interest, fees and the real cost of credit
Review the stated rate together with commitment fees, origination fees, monitoring fees, exit fees, broker fees, default charges and other costs connected to the advance of credit.
Short-term financing can be especially difficult to compare using a simple dollar fee. The timing and full cost matter.
4. Repayment, amortization and maturity
Does the borrower pay principal monthly, make interest-only payments, make a final balloon payment or repay on demand? The payment schedule should be tested against realistic cash flow.
Amortization and maturity are not always the same. A loan can be calculated over a longer amortization but become fully due at an earlier maturity date.
5. Conditions before funding
The lender may not be required to advance funds until specified conditions are satisfied. These can include signed security documents, corporate approvals, searches, insurance, equity contributions, third-party consents and satisfactory financial information.
6. Positive and negative covenants
Positive covenants require the borrower to do things—for example, maintain insurance, pay taxes or deliver financial statements.
Negative covenants restrict actions—for example, taking on new debt, granting additional security, selling assets, paying dividends or changing the business without consent.
A borrower should ask whether the covenants fit normal operations and future growth plans.
7. Financial covenants
Some facilities require the borrower to maintain ratios or minimum levels relating to debt service, leverage, liquidity, net worth or other financial measures.
The formula, accounting principles, test dates and consequences of a breach should be understood before the covenant is accepted.
8. Events of default and cure periods
Default is usually broader than missing a payment. It may include inaccurate representations, covenant breaches, insolvency events, judgments, cross-default to other debt or material changes in the business.
Review which defaults have notice or cure periods and which can trigger immediate remedies.
9. Acceleration and enforcement rights
After an event of default, the lender may have rights to stop further advances, demand payment, accelerate future amounts, enforce guarantees or take steps against collateral, subject to the documents and applicable law.
10. Security and collateral
The security description should be read carefully. Does it cover one financed asset, receivables, inventory, equipment, shares or substantially all personal property?
The borrower should also understand whether existing lenders already have registrations and whether new financing requires consent, subordination or payout of earlier debt.
11. Guarantees and personal exposure
A personal guarantee changes the risk profile for an owner. Review whether the guarantee is limited or unlimited, continuing or transaction-specific, and whether it covers principal only or broader costs, interest and obligations.
Do not assume a guarantee ends automatically because the original loan is renewed, amended, increased or refinanced. The wording matters.
12. Prepayment, refinancing and exit
Can the borrower pay early? Is there a minimum interest period, make-whole amount, exit fee or notice requirement? What must happen before security is released?
A borrower planning to sell the company, refinance or bring in a new lender should understand the exit mechanics from the beginning.
“The cost of financing is not only the rate. It is also the control the business gives up, the property it puts at risk and the consequences attached to a default.”
— Trusz Law
SECURITY & PPSA REGISTRATION
How does security over business property work in Ontario?
A secured financing transaction usually involves both a private agreement and a public registration process.
The security agreement is the contract that grants the lender a security interest in described collateral. The financing statement is the document registered in Ontario’s Personal Property Security Registration system to give notice of a security interest.
Ontario’s PPSR system is a public database for registrations and searches under the Personal Property Security Act. The province explains that creditors who take a security interest in a debtor’s personal property should register a financing statement to protect their interests, and that registration helps establish priority among competing interests.
For borrowers, the practical questions include:
- What collateral is covered?
- Does the lender have a specific or broad security interest?
- What registrations already exist against the company?
- Does another creditor need to consent or subordinate?
- How long is the registration period?
- What must happen after the debt is repaid for the registration to be discharged?
Registration is important, but it is not the only priority question. The type of collateral, timing, perfection method, existing interests and other legal rules can affect priority. Searches and document review should be completed in the context of the actual transaction.
INTEREST & COST OF CREDIT
Why the stated interest rate may not tell the whole story
Business financing can include interest, lender fees, broker commissions, monitoring charges, commitment fees, default charges and other costs. The legal treatment of those amounts can depend on the document and the applicable legislation.
Canada’s Interest Act generally requires a written contract that states interest for a period shorter than a year—such as a daily, weekly or monthly rate—to include the equivalent yearly rate if more than the statutory amount is to be recoverable.
The Criminal Code currently defines the criminal rate as an annual percentage rate of interest exceeding 35% on the credit advanced, and its definition of “interest” broadly includes many charges and expenses connected to advancing credit.
There are specific commercial-loan exemptions. Under the current Criminal Interest Rate Regulations, section 347 does not apply where the borrower is not a natural person, the borrowing is for a business or commercial purpose and:
- the credit advanced is more than $10,000 and up to $500,000, with an annual percentage rate that does not exceed 48%; or
- the credit advanced is more than $500,000.
These rules are technical and the calculation can include more than the contract’s headline rate. A lender or borrower dealing with high-cost, short-term or fee-heavy financing should obtain specific advice rather than assuming the stated rate answers the legal question.
TWO SIDES OF THE FINANCING
What does the borrower care about—and what does the lender care about?
The borrower is asking: can the business live with these terms?
The borrower usually focuses first on the amount, rate and payment. It should also test the covenants, reporting burden, restrictions on future borrowing, ability to sell assets, guarantee exposure and cost of getting out early.
A financing facility that solves today’s cash need but blocks tomorrow’s acquisition, investor or refinancing plan may be more restrictive than it first appears.
The lender is asking: how will I be repaid if the plan changes?
The lender wants to understand cash flow, the purpose of the financing, the borrower’s existing debt, the collateral and the people or companies standing behind the obligations.
That is why lenders use reporting covenants, restrictions, security, guarantees, conditions to funding and events of default. The legal documents turn the credit decision into enforceable rights.
THE PROCESS
How does a business financing transaction usually work?
01 Review the term sheet or commitment
Identify the amount, purpose, pricing, repayment, security, guarantees, conditions and major covenants before spending heavily on definitive documents.
02 Complete due diligence and searches
The lender may review corporate records, ownership, financial information, existing debt, material contracts, litigation, collateral and PPSA search results.
03 Draft and negotiate the financing documents
The parties work through the loan agreement, note, security documents, guarantees and other transaction-specific documents.
04 Satisfy conditions to funding
This can include corporate approvals, signed documents, evidence of insurance, registrations, third-party consents, equity contributions and payout or subordination arrangements with existing creditors.
05 Advance the funds and complete registrations
Funds are advanced according to the closing process, and required security registrations or other post-closing steps are completed.
06 Manage the loan after closing
Track payments, reporting deadlines, financial covenants, renewal dates, consent requirements and any changes to the business that may affect the financing.
07 Refinance, repay or enforce the exit process
At payout, the borrower may need a payout statement, releases, return of collateral documents and discharges or amendments of registrations.
COMMON FINANCING MISTAKES
Problems that are easier to prevent before funding
Looking only at the interest rate.
Fees, repayment timing, security, guarantees and exit costs can materially change the financing.
Signing a broad personal guarantee without understanding the scope.
Owners should know what obligations are covered and whether the guarantee is limited, continuing or affected by future amendments.
Assuming the lender is taking security only over the financed asset.
The actual collateral description may be much broader.
Accepting covenants the business cannot realistically maintain.
A covenant breach can create default rights even while payments are current.
Ignoring existing PPSA registrations.
New financing may be delayed by earlier lenders, old registrations, priority issues or the need for a subordination agreement.
Using short-term financing for a long-term cash problem.
A facility with rapid payments, renewal pressure or expensive exit terms can create a refinancing problem at maturity.
Leaving the discharge process until after payout.
A repaid loan can continue to create transaction problems if releases and registrations are not properly addressed.
Failing to document related-party or shareholder loans.
Informal advances between an owner and company can create uncertainty about repayment, priority, interest and tax treatment.
HOW TRUSZ LAW CAN HELP
Understand the obligations behind the money before the financing closes.
Trusz Law helps Ontario businesses, owners, private lenders and related parties prepare, review and negotiate loan and financing documents.
Depending on the matter, that may include loan agreements, promissory notes, security agreements, personal or corporate guarantees, shareholder loans, PPSA-related documents, priority arrangements, corporate approvals and closing documents.
The goal is to make the financing understandable: what is being borrowed, what it costs, what must remain true while it is outstanding, what property or people stand behind it and how the relationship ends.
FREQUENTLY ASKED QUESTIONS
Business financing questions owners often ask
What documents are usually required for a business loan?
The package depends on the transaction. Common documents include a loan or credit agreement, promissory note, security agreement, PPSA financing statement and personal or corporate guarantee. Lenders may also require corporate resolutions, certificates, insurance evidence, searches, subordination agreements or other closing documents.
What is the difference between a loan agreement and a promissory note?
A loan agreement usually contains a broader set of terms covering the facility, interest, fees, repayment, covenants, defaults, representations and remedies. A promissory note is generally a written promise to pay a debt on stated terms. It may be used alone in a simpler loan or alongside a larger financing package.
What is a secured business loan?
A secured business loan gives the lender a security interest in identified collateral to support repayment. The collateral may be a specific asset or broader categories of business property. The documents and applicable law determine the lender’s rights, and registrations may be used to protect priority against competing interests.
What is a PPSA registration in Ontario?
Ontario’s Personal Property Security Registration system is a public database used for registrations and searches under the Personal Property Security Act. A lender that takes a security interest in personal property may register a financing statement. The registration gives public notice of the interest and can affect priority among competing claims.
Is a PPSA financing statement the same as a security agreement?
No. The security agreement is the underlying contract that grants security rights in collateral. The financing statement is the document registered in the public PPSR system to give notice of the security interest. A registration does not replace the need to review the underlying transaction documents.
What is a personal guarantee on a business loan?
A personal guarantee can make an individual responsible for guaranteed obligations if the business borrower does not perform. The scope depends on the wording. A guarantee may be limited or unlimited and may cover more than unpaid principal, including interest, enforcement costs or other obligations.
Can a lender charge more than 35% interest on a business loan in Canada?
Canada’s Criminal Code currently defines the criminal rate as an annual percentage rate exceeding 35% on the credit advanced, but the Criminal Interest Rate Regulations contain specific exemptions for qualifying business or commercial loans to borrowers that are not natural persons. The exemption depends on the amount advanced and other conditions, and the legal calculation of interest can include fees and charges beyond the stated rate.
What is the difference between interest and APR?
The stated interest rate describes one component of borrowing cost. APR is intended to express the annualized cost using the applicable legal or regulatory calculation. For the Criminal Code criminal-rate rules, the definition of interest broadly includes many fees, fines, penalties, commissions and similar charges connected to advancing credit.
Can a business repay a loan early?
Only on the terms permitted by the financing documents and applicable law. Some loans allow prepayment without charge; others require notice, minimum interest, an exit fee or another prepayment amount. The borrower should also confirm what is needed for security releases and registration discharges.
What happens when a business loan goes into default?
The result depends on the agreement and the type of default. A lender may be able to stop further advances, demand payment, accelerate the debt, enforce guarantees or take steps against collateral, subject to the documents and applicable law. Some defaults have notice or cure periods; others may trigger immediate rights.
Should shareholder loans be put in writing?
Usually, yes. A written record can clarify the amount advanced, whether interest applies, when repayment is due, whether the debt is subordinated and whether security is granted. Related-party loans can also have tax consequences, so legal and tax advice should be coordinated.
When should a lawyer review business financing documents?
Legal review is particularly useful before accepting a binding commitment, granting broad security, signing a personal guarantee or agreeing to complex covenants and default terms. Review is most effective before the business has already committed to a structure that is difficult to renegotiate.
OFFICIAL RESOURCES
Further reading
ABOUT THIS RESOURCE
Prepared by Tatyana Trusz, Trusz Law. This resource is for general information only and is not legal, tax or financial advice. Financing rights and obligations depend on the specific documents, parties, collateral, governing law and circumstances. Last reviewed July 2026.
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BEFORE THE MONEY MOVES
Understand the obligations behind the financing.
Start with what is being borrowed, what it costs, what secures it and what happens if the plan changes.
