Security is the legal claim a lender takes over specific assets to protect its position if the borrower defaults; collateral is the asset itself that backs that claim.

Lenders do not advance money on trust alone. Security gives them a defined legal remedy if the borrower fails to repay: the right to seize and sell the collateral to recover the outstanding balance. The type of security available, real estate, receivables, inventory, equipment, shares, determines how much a lender will advance and on what terms.

The general security agreement, or GSA, is the most common form for Canadian business lending. It gives the lender a security interest in all present and after-acquired property of the business. More specific security, like a specific charge on a piece of equipment or a mortgage on real property, is registered separately. Understanding what assets are encumbered, under which agreements, and with which lenders is essential when a business wants to access additional financing, because conflicting security claims require resolution before a new lender will advance.

Knowing the existing security position before approaching a new lender avoids surprises that delay or derail the conversation See how Wefinx approaches Virtual CFO services.

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