Limited Recourse Loan Agreement Template for Canada

A Limited Recourse Loan Agreement is a sophisticated financing document that provides lenders with recovery rights limited to specific collateral or assets, rather than unlimited access to your entire estate. Under Canadian law, this arrangement offers significant protection for borrowers while still providing lenders with adequate security through carefully selected assets or cash flows.

When do you need this document?

You need a Limited Recourse Loan Agreement when undertaking project finance transactions where you want to isolate financial risk to specific assets. This document is essential for real estate developers securing construction financing against particular properties, energy companies funding specific projects, or businesses seeking asset-backed loans without personal guarantees. The agreement is particularly valuable when you're structuring complex financing arrangements involving multiple parties such as security agents, collateral custodians, and administrative agents who need clearly defined roles and limitations.

Key legal considerations

Your agreement must clearly define the scope of recourse limitations and identify all secured assets with precision. Pay careful attention to enforcement mechanisms and ensure compliance with both federal and provincial security interest requirements. The document should specify interest calculation methods in accordance with the Interest Act and ensure rates don't exceed Criminal Code limits. Consider including detailed default provisions, cure periods, and clear procedures for collateral realization. You'll also need to address cross-default provisions, subordination arrangements if applicable, and the roles of various parties including security trustees and account banks.

Legal requirements in Canada

Your Limited Recourse Loan Agreement must comply with the Bank Act if your lender is a federally regulated financial institution, ensuring proper lending authority and disclosure requirements. Interest provisions must meet Interest Act standards for annual rate disclosure and calculation methods. You must perfect security interests according to your provincial Personal Property Security Act, which varies by jurisdiction but follows similar principles across Canada. Ensure your effective annual interest rate remains below the 60% criminal rate threshold under Section 347 of the Criminal Code. The agreement should also consider Bankruptcy and Insolvency Act implications for creditor rights and enforcement procedures. Provincial securities legislation may apply if your financing structure involves investment components, requiring additional compliance considerations.