What is a purchase-money security interest and why does it get special priority over other lenders?

A purchase-money security interest, or PMSI, is a specific type of security interest that arises when a lender or supplier finances a corporation's acquisition of particular collateral — for example, a supplier who sells equipment on credit and takes security in that equipment, or a lender who advances funds specifically used to buy an identified asset. It's tied directly to enabling the debtor to acquire that specific property, which is what sets it apart from a general lender's broader security interest.

Ontario's Personal Property Security Act gives a properly registered PMSI a form of super-priority, letting it rank ahead of an earlier-registered general security interest in the same collateral, even though the general lender registered first. The reasoning is that the PMSI lender's financing is what actually brought the new asset into the corporation's hands, so it's treated as fair to let that lender's interest in that specific asset jump ahead of an existing general claim. To actually get this super-priority, the PMSI holder generally needs to meet specific registration requirements, and in some cases give notice to other registered secured parties, so the formalities matter as much as the underlying financing itself.