Commercial Loan Agreement for Canada

Commercial Loan Agreement Template for Canada

A Canadian Commercial Loan Agreement is a legally binding document that establishes the terms and conditions under which a financial institution provides a loan to a business entity. The agreement operates under Canadian federal banking laws and provincial contract laws, incorporating provisions for interest calculation under the Interest Act, security arrangements under the Personal Property Security Act, and compliance with the Bank Act. It details the loan amount, interest rates, repayment terms, security arrangements, borrower covenants, events of default, and remedies available to the lender. The document includes specific Canadian legal requirements for disclosure, interest calculation, and enforcement mechanisms.

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What is a Commercial Loan Agreement?

The Commercial Loan Agreement is a fundamental document in Canadian business financing, used when a business entity requires substantial funding for operations, expansion, or specific projects. It's essential for establishing the legal framework of a lending relationship between financial institutions and commercial borrowers. The agreement must comply with Canadian federal legislation, including the Bank Act and Interest Act, as well as provincial laws governing contracts and security interests. The document typically includes comprehensive details about the loan facility, security arrangements, financial covenants, and reporting requirements. This type of agreement is crucial for protecting both lender and borrower interests, ensuring clear understanding of obligations, and providing legal remedies in case of default. It's particularly important in the Canadian context due to specific regulatory requirements and the unique aspects of Canadian banking and security laws.

What sections should be included in a Commercial Loan Agreement?

1. Parties: Identifies and defines the Lender and Borrower with their full legal names and addresses

2. Background: Explains the context of the loan and the parties' intention to enter into the agreement

3. Definitions and Interpretation: Defines key terms used throughout the agreement and sets out interpretation rules

4. The Loan: Specifies the loan amount, purpose, and conditions precedent to drawdown

5. Interest and Fees: Details the interest rate, calculation method, fees, and payment terms

6. Repayment Terms: Specifies repayment schedule, prepayment rights, and mandatory prepayment events

7. Security: Describes the security being provided for the loan

8. Representations and Warranties: Lists the Borrower's assertions about its legal status and financial condition

9. Covenants: Sets out positive and negative obligations of the Borrower during the loan term

10. Events of Default: Lists circumstances that constitute default and the Lender's remedies

11. Administration: Covers operational aspects like payment mechanics and calculations

12. Changes to the Parties: Addresses assignment and transfer rights

13. Notices: Specifies how formal communications between parties should be made

14. General Provisions: Contains boilerplate clauses including governing law, amendments, and severability

What sections are optional to include in a Commercial Loan Agreement?

1. Guarantees: Required when third parties are guaranteeing the loan obligations

2. Multiple Lenders: Needed for syndicated loans with multiple lenders

3. Currency Provisions: Required for multi-currency loans or when payments may be made in different currencies

4. Tax Gross-Up: Used when tax implications need to be addressed explicitly

5. Increased Costs: Relevant when regulatory changes might affect the lender's costs

6. Market Disruption: Important for loans with variable interest rates tied to market benchmarks

7. Insurance Requirements: Needed when specific insurance coverage is required as part of the loan conditions

8. Environmental Provisions: Required when the loan involves real property or environmental risks

What schedules should be included in a Commercial Loan Agreement?

1. Schedule 1 - Drawdown Notice: Form of notice for requesting loan disbursements

2. Schedule 2 - Repayment Schedule: Detailed amortization schedule if applicable

3. Schedule 3 - Security Documents: List and copies of all security documents

4. Schedule 4 - Conditions Precedent: Detailed list of conditions to be satisfied before drawdown

5. Schedule 5 - Financial Covenants: Detailed financial covenants and calculation methodologies

6. Schedule 6 - Permitted Liens: List of pre-approved encumbrances on security

7. Schedule 7 - Compliance Certificate: Form of periodic compliance certification

8. Appendix A - Property Description: Description of any real property or major assets serving as security

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

Canada

Publisher

Genie AI

Document Type

Loan Agreement

Sector

Banking

Cost

Free to use

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