Demand Loans in Ontario: What Business Borrowers Need to Know

Many Ontario business owners sign a loan or credit facility agreement without fully registering that it is a demand loan — one the lender can call due at any time, not just after a missed payment or a breach. That feature is easy to overlook in a stack of financing paperwork, but it fundamentally changes how much planning certainty a borrower actually has.

This article explains what makes a loan a demand loan, why lenders use the structure, and what a borrower can reasonably expect if a demand is made.

What Makes a Loan a "Demand Loan"

A demand loan is a loan repayable in full whenever the lender demands repayment — regardless of whether the borrower has missed a payment, broken a covenant, or done anything else "wrong." The lender's right to demand is built into the loan agreement itself, not triggered by a default.

This is different from a fixed-term loan, where the lender generally can only accelerate repayment if a defined event of default occurs before the scheduled maturity date. With a demand loan, the maturity date (if one exists at all) is essentially secondary to the lender's standing right to call the loan on notice.

Operating lines of credit are very commonly structured as demand facilities, even though they may also list specific events of default — giving the lender two separate paths to require repayment: a default, or simply a demand.

Why Lenders Use Demand Structures

Lenders favour demand loans, particularly for smaller and mid-sized business borrowers, because they preserve maximum flexibility to respond to changing risk — a declining industry, a customer's account showing new problems, or simply a shift in the lender's own risk appetite — without having to prove that a specific default clause was triggered.

For the borrower, the trade-off is straightforward: demand loans are often easier to obtain, and sometimes come with more flexible day-to-day terms, in exchange for less long-term repayment certainty.

What Happens When a Lender Demands Repayment

1. The lender issues a formal demand. This is usually a written notice stating the amount owing and requiring repayment.
2. A notice period may be given, but is not always required by the loan document itself. The lender's contractual right to demand does not automatically come with a stated notice period unless the agreement provides one.
3. Canadian courts have generally recognized that a borrower is entitled to a reasonable period of notice before enforcement steps are taken — enough time, in principle, to attempt to arrange replacement financing, even where the loan agreement is silent on notice. What counts as "reasonable" depends heavily on the borrower's circumstances and is not a fixed number of days or weeks.
4. If repayment is not made, the lender may move to enforce its security — for example, registering against secured assets, appointing a receiver, or pursuing other remedies available under the loan documents and applicable law.
5. Throughout this process, the borrower's options narrow quickly — which is why early legal advice, at the first sign of lender concern, matters more with a demand facility than with a fixed-term loan.

Planning Around Demand-Loan Risk

• [ ] Know whether each of your facilities is demand-based, default-based, or both — read the actual agreement, not just the term sheet summary.
• [ ] Keep your lender relationship current — provide financial information and updates proactively rather than only when asked.
• [ ] Watch for early warning signs from your lender (requests for more frequent reporting, a relationship-manager change, informal check-ins) that may precede a formal demand.
• [ ] Maintain a realistic sense of your alternative financing options before you need them, not after a demand arrives.
• [ ] Get legal advice as soon as you receive a demand or believe one may be coming — the available options shrink the longer you wait.

Frequently asked questions