General Security Agreements in Ontario: What a GSA Actually Covers

When a bank or other lender finances an Ontario business, it almost always asks for more than a signature on a loan agreement — it wants collateral. The most common tool for this is a general security agreement, commonly called a GSA. Business owners often sign one without fully understanding just how much of the business it actually reaches.

This article explains what property a GSA typically covers, what it usually leaves out, and how it becomes legally enforceable against the business and, eventually, against other creditors.

What a General Security Agreement Is

A general security agreement is a contract between a borrower and a lender under which the borrower grants the lender a security interest in some or all of its personal property, as collateral for a loan or other obligation. "Personal property" in this context is a broad legal category — it covers everything other than land, so equipment, inventory, accounts receivable, and intangible assets like intellectual property can all fall inside it.

The Property a GSA Typically Reaches

A GSA is usually drafted as a blanket security interest, meaning it is written to catch:

• Equipment and machinery the business currently owns
• Inventory, whether raw materials or finished goods
• Accounts receivable (money customers owe the business)
• Bank accounts and cash on hand
• Intangibles such as intellectual property, goodwill, and contract rights
• After-acquired property — assets the business acquires after signing, not just what it owned on day one

That last point surprises a lot of borrowers: a properly drafted GSA doesn't freeze at the signing date. New equipment bought next year, this month's new inventory, and next quarter's receivables are typically all swept in automatically, without a new agreement.

What a GSA Usually Does Not Reach

A GSA is broad, but it is not unlimited. It generally does not cover:

• Real property (land and buildings) — that requires a separate mortgage or charge
• Assets the business does not actually own (leased equipment, for instance, generally remains the lessor's)
• Any specific exclusions the parties negotiate into the agreement itself
• Personal assets of the owners, unless a separate personal guarantee or additional security document also covers them

From Signing to Enforceable: Attachment and Perfection

Signing a GSA is not the end of the story. Under Ontario's Personal Property Security Act (PPSA), a security interest has to "attach" to become enforceable against the borrower — broadly, this happens once value has been given, the borrower has rights in the collateral, and a valid security agreement exists. But to protect the lender's priority against other creditors and a later bankruptcy trustee, the lender also needs to "perfect" the interest, most commonly by registering a financing statement on the PPSA registry. An unregistered, unperfected GSA can still bind the borrower personally but is dangerously exposed to being defeated by other claims.

How a GSA Interacts With Other Lenders' Claims

Because a GSA is so broad, it frequently overlaps with other security interests — a supplier's purchase-money security interest in specific equipment, or a second lender's later GSA over the same assets generally. Ontario's PPSA priority rules generally rank competing registered interests by who registered first, with an important exception for a properly preserved purchase-money security interest, which can leapfrog an earlier general security interest in the same collateral. If your business is negotiating new financing while an existing GSA is already registered, expect the new lender to ask about it — and possibly require the existing lender's consent or a subordination agreement.

Reading Your Own GSA Before You Sign

Before signing, a borrower should understand exactly what's swept into the GSA's definition of "collateral," whether any carve-outs are negotiated (some lenders will exclude specific assets on request), what events count as default, and what remedies the lender gets on default. These are all negotiable to some degree, especially for a business with any bargaining power — but only if you understand the document before you sign it, not after.

Frequently asked questions