My name is Stephanie Harvey and I am a corporate/commercial lending lawyer with Gowling WLG. You are watching video one of our 'Types of Security' video series. As the name suggests, each video in this series will discuss different security that a lender should consider when putting its security package together.
There have been many changes in the world of commercial and corporate loan transactions over the years, but there also has been one constant.
The concept of taking security for the making of a loan.
Every lender wants contractual recourse if its loan isn't repaid, or if the borrower fails to perform its other covenants under the loan or credit agreement.
So what does security mean?
By taking security we simply mean having the borrower or other related parties sign one or more documents that give the lender a security interest in one or more of its assets. So if the loan goes into default, the lender will have some recourse to seize and sell the borrower's assets to offset those proceeds against amounts owed by the borrower to the lender.
Why is it important?
Unless you are lending to very large corporate or governmental clients with significant asset bases who receive loans on an unsecured basis, taking security from your borrower will give you superior rights to those of unsecured creditors of your borrower, and it is your best protection if the loan ever goes into default.
As you might expect, there are a variety of documents that a lender can choose from on the Security menu.
Several factors drive the choice of a particular security document to be used on any transaction.
Are you taking security over real property or personal property or both?
What type of personal property is your target asset? Equipment, accounts receivable, equitable securities, cash collateral, intellectual property and other specialty assets may in some cases require special or deal specific documents.
Where are the assets to be secured located?
All of these are questions to be consider in choosing your documentary security package.
As this is a very broad topic, we have developed a series of videos that address some of the security documents you may need to consider in designing and drafting your credit submissions and term sheets. There will of course be other documents you may need to complete your security slate.
We invite you to review all of the videos in this series for examples of some of the security document tools available in structuring your financing.