CSBFP security: what the lender takes as collateral

CSBFP is a secured loan. The lender takes a security interest in the assets financed, and in some cases in additional assets. Lenders often ask for a personal guarantee, although the program does not require one. But the security package under CSBFP is specifically designed to be less burdensome on the borrower than a conventional commercial loan, and understanding it exactly is important for any business owner evaluating the program.

What the lender registers: the primary security

The primary security is always a registered interest in the financed assets. The form of registration depends on the type of asset:

Equipment: The lender registers a lien on the financed equipment under the Personal Property Security Act (PPSA) in the relevant province. The lien attaches to the specific equipment items identified in the loan, not to all business equipment generally. If the loan finances three pieces of equipment, the lien covers those three pieces.

Leasehold improvements: Leasehold improvements are embedded in the leased space, they cannot be moved, and their residual value at the end of a lease is limited. For leasehold improvement loans, the lender registers an interest in the improvements and may also take an assignment of the commercial lease as additional security.

Real property: For loans with a real property component, the lender registers a mortgage (or in some provinces, a charge on title) against the property. This is the most significant security position, a registered mortgage is a senior charge on the real estate.

The general security agreement

In addition to the primary asset-specific security, many CSBFP lenders require a General Security Agreement (GSA), a blanket security interest over all of the business's assets. A GSA is registered under the PPSA and gives the lender a security interest in the business's accounts receivable, inventory, equipment, and other assets generally.

Not all lenders require a GSA for CSBFP loans, particularly at lower loan amounts. The requirement varies by institution. Some lenders take only the primary asset-specific security for equipment-only files; others routinely require a GSA as a condition of all commercial lending. For loans that finance leasehold improvements, software, intangibles or working capital, the program has required since July 2022 that the lender also take security on other business assets, so asset-only security on those items alone is not enough.

A GSA creates a broader lien on the business than the asset-specific security but does not extend to the personal assets of the owner (that is covered separately by the personal guarantee, discussed below).

The personal guarantee: what unsecured means

The program does not require a personal guarantee, but many lenders ask for one from the principal shareholders or directors, as they do on conventional commercial loans. What makes CSBFP different is not a dollar cap on the guarantee, it's a requirement on the guarantee's form.

Under the CSBFP rules, the personal guarantee must be unsecured: the lender cannot register a lien, mortgage, or other collateral against the guarantor's personal home or assets to back it. Within that unsecured form, the guarantee can be taken for up to 100% of the original amount of the loan disbursed. For a $400,000 CSBFP loan, that means unsecured guarantees totalling up to $400,000, fixed at origination regardless of the outstanding balance.

The dollar exposure can look the same as a conventional commercial loan, where personal guarantees are also typically for the full outstanding loan balance. The real difference is the security: a conventional lender can back that guarantee with a mortgage against the guarantor's home; a CSBFP lender cannot.

What the CSBFP guarantee's unsecured requirement means in practice:

A borrower on a $400,000 CSBFP loan can be personally pursued for up to the full $400,000 if the business fails and a shortfall remains after the lender realizes on its security
If the lender recovers most of the loan through the PPSA security and GSA, the personal guarantee exposure is reduced to whatever shortfall remains, up to the original loan amount
The guarantee is unsecured. The lender does not register a lien against the guarantor's personal home or assets as part of the CSBFP guarantee (unlike a conventional guarantee, which may be backed by a charge on the personal residence)

The unsecured requirement applies specifically to CSBFP loans. A lender who also has a conventional credit facility (operating line, business mortgage) with the same business may hold a separate personal guarantee, potentially secured, on those other facilities.

What "unsecured guarantee" does not mean

The CSBFP personal guarantee's unsecured requirement does not mean:

The guarantee is trivial. A guarantee that can reach the full original loan amount is a meaningful personal obligation.
The lender won't pursue recovery. If the business fails and assets are liquidated, the lender will apply all available security before calling the guarantee, and will pursue collection on the guarantee for any shortfall up to the original loan amount.
The borrower's credit rating is protected. A default on a CSBFP loan, with a guarantee call, will appear on the borrower's personal credit report and affect their future borrowing capacity.

The unsecured requirement simply means the lender can never have pre-registered a lien or mortgage against the guarantor's personal assets to back the claim; it does not mean the dollar amount the lender can ultimately pursue is capped below the original loan amount.

Additional security conditions specific to real property

For CSBFP loans with a real property component, the security package is more extensive:

First mortgage or charge on title (unless a prior lender holds a first mortgage, in which case the CSBFP lender may take a second position or require the prior lender to register a tri-party agreement)
Assignment of rents and leases (for investment property, though most CSBFP owner-occupied real property does not have tenants)
Title insurance is often required to confirm clear title and protect against title defects
Environmental indemnity may be required for industrial or commercial properties with potential environmental liability

Real property security is stronger collateral for the lender (real estate is more reliably valued and more saleable than equipment), which is consistent with real property drawing on the full $1,000,000 term-loan ceiling, higher than the $500,000 combined sub-limit that applies to equipment and leasehold improvements.

Assignment of lease: what it means for leasehold files

For CSBFP loans financing leasehold improvements, the lender often requests an assignment of the commercial lease as additional security. An assignment of lease means:

If the business defaults and the lender enforces its security, the lender has the right to step into the lease (or assign the lease to another party) rather than having the landlord terminate it
The landlord must consent to the assignment (most commercial leases have a clause addressing this)
The lender typically does not actually want to occupy the space, the assignment preserves the option to find a new tenant and recover some or all of the leasehold improvements through a new occupant

The assignment of lease condition often prompts a conversation with the landlord. Most sophisticated commercial landlords are familiar with this requirement and will provide a standard lender's letter or consent form. Landlords who are unfamiliar with CSBFP may need the borrower to explain the process.

When the loan is repaid

When the CSBFP loan is fully repaid:

PPSA discharges are filed by the lender, removing the liens on the financed equipment. The borrower typically receives confirmation of discharge within a few weeks of final payment.
Mortgage discharge (for real property): The lender registers a discharge of the mortgage on title. This requires the borrower to request the discharge and may involve a small discharge fee.
Personal guarantee release: The personal guarantee is extinguished by full repayment of the loan principal, interest, and any fees. The lender should provide written confirmation of guarantee release on request.

There is no ongoing obligation once the loan is fully repaid.

What happens if the business fails

If the business cannot service the CSBFP loan and defaults:

The lender triggers default proceedings under the loan agreement (typically after missed payments and a notice period)
The lender realizes on its security: PPSA security is enforced (equipment is seized and sold), real property is mortgaged into power of sale
The proceeds of security realization are applied to the outstanding debt
If a shortfall remains, the lender calls the personal guarantee (up to 100% of the original registered amount, unsecured)
The lender then claims from ISED for 85% of the eligible net loss (after applying security proceeds and the personal guarantee), subject to the lender's portfolio cap

The guarantor's obligation ends once the guarantee is satisfied, up to the original amount disbursed. Any remaining loss is shared: the government pays 85% of the eligible loss, subject to the lender's portfolio cap, and the lender bears the rest.

For a full overview of the CSBFP program terms, see the CSBFP overview. The personal guarantee page covers the unsecured, up-to-100% rule in more detail.