BDC Priority Agreement: Everything You Need to Know
In the world of business, it`s important to have a solid understanding of the terms and agreements that govern your operations. One such agreement that often comes up when securing financing is the BDC Priority Agreement.
So, what is a BDC Priority Agreement? In simple terms, it is an agreement between a borrower and the Business Development Bank of Canada (BDC) that outlines the priority of certain assets or collateral in the case of default or insolvency.
The BDC is a federal Crown corporation aimed at supporting small and medium-sized businesses in Canada. As a lender, they may require borrowers to sign a priority agreement as part of their financing terms.
The purpose of the agreement is to provide clarity on which assets or collateral will have priority in the event of a default. This means that in the event of insolvency or bankruptcy, the assets outlined in the priority agreement will be used to pay off outstanding debt before any other assets can be used.
The assets listed in the agreement may include things such as property, equipment, inventory, accounts receivable, and other assets that could potentially be used to pay off any outstanding debt. Essentially, the BDC wants to ensure that they have a guaranteed source of recovery for their investment should the borrower be unable to pay back the loan.
It`s important to note that a BDC Priority Agreement is not unlike other types of priority agreements that borrowers may encounter in their business dealings. For example, a lender may require a personal guarantee from a borrower, which would give that lender priority in the event of a default.
Additionally, many lenders may require a UCC-1 filing, which is a public notice of their priority claim on certain assets. This filing is usually made with a state or provincial government agency.
So, why is a BDC Priority Agreement important? For borrowers, it`s crucial to understand the terms and conditions of any financing agreement they enter into. The BDC Priority Agreement is just one piece of that puzzle.
By signing the agreement, borrowers are essentially securing their financing with specific assets. However, borrowers need to be aware that the BDC will have priority over those assets in the event of a default, which could potentially leave the borrower with little to no assets to use to secure future financing.
In summary, a BDC Priority Agreement is a necessary part of securing financing from the Business Development Bank of Canada. It outlines the priority of certain assets or collateral and gives the BDC a guaranteed source of recovery in the event of a default or insolvency. But, as with any financing agreement, it`s important for borrowers to fully understand the terms and conditions of the agreement before signing on the dotted line.