Collateral
Collateral is an asset of value that a borrower pledges as a guarantee that a loan will be repaid. If the borrower stops repaying, BDC says the lender can seize and sell it. Ontario’s Personal Property Security Act defines it as personal property subject to a security interest.
BDC says the collateral pledged for a loan is typically the item being financed. BDC lists vehicles, equipment, buildings, accounts receivable, inventory, intellectual property and the owner’s personal assets as examples. The guide to financing a business acquisition shows where collateral fits.
How the law uses the word
Ontario’s Act, in its definitions, says “collateral” means personal property that is subject to a security interest. That is Ontario’s definition; if the assets or the borrower are in another province, ask a lawyer which province’s Act applies and how it defines the term. Ontario’s Act defines a security interest as an interest in personal property that secures payment or performance of an obligation; see security interest and general security agreement.
What to ask
- Which assets the lender wants pledged.
- Whether a personal guarantee is also required.
- Whether the assets already secure another lender’s debt.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentWhat is collateral?
- 02Business Development Bank of CanadaGovernment5 solutions to get a business loan without collateral
- 03Government of OntarioGovernmentPersonal Property Security Act, R.S.O. 1990, c. P.10
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