Glossary
An asset pledged to secure a loan.
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An asset pledged to secure a loan.
If the borrower does not repay, the lender can take the pledged asset. Equipment, property, receivables and inventory are common collateral.
It lowers lender risk and usually lowers cost, but ties up assets.
An equipment loan typically uses the equipment itself as collateral.
Canadian lenders register security interests under provincial personal property security legislation.
Reviewers may search registrations to see existing security interests, which show what other lenders hold.
A general security agreement can cover nearly everything the business owns, not just the asset being financed. Read it.
Secured lenders can price lower because they can recover part of a loss from the asset. If you have equipment, property or strong receivables, secured financing is often the cheapest route for planned investments.
Pledging assets limits future flexibility. A general security agreement registered against the business can make other lenders hesitant, and selling or replacing a pledged asset may need the lender's consent.
Unsecured options, such as advances based on future receivables, cost more but leave assets free. Many businesses use both: secured financing for long-life assets and unsecured short-term funding for timing gaps. A search of provincial registrations shows what is already registered against your business.
A Winnipeg print shop wants $60,000 for a new press. An equipment lender offers a lower rate with the press as collateral, plus a general security agreement registered over the business's assets. A month later the owner needs a short bridge for a large order; the second funder sees the existing registration and asks how the two agreements interact. Knowing what was pledged, and whether the first lender limits other financing, would have made both decisions faster. The lesson is not to avoid collateral, which often lowers cost, but to read exactly what it covers and keep a copy of every registration against the business.
Key takeaway: Collateral usually lowers the price of money but ties up assets. Read exactly what each security agreement covers.
Usually they are based on future receivables rather than specific assets.
See the related guides and the comparison pages, or apply and ask.
No. It is educational information, and agreements vary.
Educational information only. It is not legal, tax or accounting advice.
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