Secured Line Of Credit Agreement Template for Canada

A Secured Line of Credit Agreement is a critical financing document that establishes an ongoing credit facility backed by specific collateral, providing borrowers with flexible access to funds while protecting lenders through registered security interests. This agreement differs from traditional term loans by allowing multiple drawdowns and repayments within agreed limits, making it ideal for businesses with fluctuating cash flow needs or seasonal operations.

When do you need this document?

You need a Secured Line of Credit Agreement when establishing a revolving credit facility that requires collateral security. This is common when your business needs working capital financing for inventory purchases, accounts receivable financing, or equipment acquisition where traditional unsecured credit is insufficient. Manufacturing companies often use these agreements to finance raw material purchases, while retail businesses utilize them for seasonal inventory buildup. Service companies may require secured lines of credit for equipment financing or to bridge payment gaps with major clients.

Key legal considerations

The security provisions are the most critical aspect of your agreement, as they determine the lender's ability to recover funds if you default. You must clearly identify all collateral, including specific assets like inventory, equipment, accounts receivable, or real estate, and ensure proper legal descriptions are included. The agreement should specify perfection requirements for security interests, including registration under applicable Personal Property Security Acts. Interest rate calculations must comply with federal Interest Act requirements, including proper disclosure of effective annual rates when compounding occurs. Default provisions should clearly outline events of default, cure periods, and enforcement procedures, while ensuring they don't violate provincial consumer protection laws if applicable.

Legal requirements in Canada

Your Secured Line of Credit Agreement must comply with the federal Bank Act if your lender is a regulated financial institution, which governs lending practices and disclosure requirements. Security interests in personal property must be perfected under the relevant provincial Personal Property Security Act, requiring proper registration to maintain priority over other creditors. Interest rates and charges must comply with the federal Interest Act, including specific calculation methods and disclosure requirements, while remaining below the Criminal Code's maximum annual rate of 60%. If you're a consumer borrower, additional protections under provincial Consumer Protection Acts may apply, requiring enhanced disclosure of terms, costs, and borrower rights. Financial institutions must also comply with federal privacy legislation regarding the collection and use of personal financial information throughout the credit relationship.