PPSA and Secured Lending: Registering Security on Ontario Business Assets

When you borrow money to fund your Ontario business, the lender almost always wants security — a legal right against your assets to recover their money if you default. In Ontario, most security over personal property (everything other than land) is governed by the Personal Property Security Act (PPSA).

Understanding how the PPSA works matters whether you are a business owner taking on a loan, a shareholder lending money to your own corporation, or a founder evaluating what rights a lender is actually getting.

What Is a Security Interest?

A security interest is a right in property given to a creditor as collateral for a debt. If you grant your lender a security interest in your business's equipment, receivables, or inventory, the lender has a legal claim against those assets if you fail to repay.

Under the PPSA, a security interest must be:

1. Created — through a written security agreement signed by the debtor (the borrower) that describes the collateral.
2. Attached — the debtor has rights in the collateral and receives value (the loan) from the secured party.
3. Perfected — for the security interest to be enforceable against third parties (other creditors, a trustee in bankruptcy, a buyer), it must be perfected — most commonly by registration of a financing statement.

Registration without a valid underlying security agreement is worthless. A security agreement without registration is valid between the parties but may be defeated by a properly perfected creditor who comes along later.

The General Security Agreement (GSA)

The most common security document in business lending is a General Security Agreement (GSA). A GSA gives the lender a security interest in all present and after-acquired personal property of the borrower — not just the specific equipment or receivable that prompted the loan, but everything the business owns and will own in the future.

For a small business owner, this means your lender may have a claim against:

• Equipment, machinery, vehicles.
• Inventory (raw materials, work-in-progress, finished goods).
• Accounts receivable (money owed to you by customers).
• Bank accounts and deposits.
• Intellectual property, domain names, goodwill.
• Future assets the business acquires.

This is a significant grant. Read every GSA before signing and confirm you understand what you are pledging.

How PPSA Registration Works in Ontario

Where to register

Financing statements are registered through the Ontario Personal Property Security Registration (PPSR) system — an electronic registry maintained by the Ontario government. Registrations are publicly searchable, which means any future creditor can check whether your assets are already encumbered before deciding to lend to you.

What a registration contains

A financing statement identifies:

• The secured party (the lender) and the debtor (your business).
• A description of the collateral — this may be general ("all present and after-acquired personal property") or specific to a category or item.
• The registration period — how long the registration remains in effect.

Searching the registry

Before taking a business loan, any sophisticated lender will search the PPSA registry for existing registrations against your business name. If prior registrations exist, the lender knows they will rank behind those creditors on any default.

You can also search the registry yourself — useful when you are buying a business and want to know what security interests exist against its assets.

Priority: Who Gets Paid First?

Priority is the ranking of security interests — who gets paid first from the collateral if the debtor defaults. The general PPSA priority rule is first-in-time: the first secured party to perfect (register) its interest generally has priority over later-registered interests.

There are exceptions:

• Purchase money security interests (PMSIs) — if a lender finances the purchase of a specific asset (e.g., equipment), and the PMSI is registered before or very shortly after the debtor takes possession of the asset, it can have super-priority even over an earlier-registered GSA. As of writing, strict timing conditions apply — verify with a lawyer.
• Control agreements — security over bank accounts and other financial assets can be perfected by control rather than registration, with different priority rules.

Understanding priority matters if you are stacking multiple credit facilities or if you are considering lending money to your own corporation and want protection over third-party lenders.

Default and Enforcement

If you default on a secured loan, the PPSA and the terms of your security agreement govern what the lender can do. Common remedies:

• Seize the collateral — take physical possession.
• Sell the collateral — sell the assets (with notice requirements) and apply proceeds to the debt.
• Appoint a receiver — in commercial loans, lenders often have the right to appoint a receiver to manage and wind down the business assets.

The PPSA sets out notice requirements and other procedural protections for debtors. A debtor has rights even in default — including the right to redeem the collateral by paying off the debt before enforcement is complete.

For Founders: Lending to Your Own Corporation

When a founder lends money to their own corporation (see also our article on shareholder loans), they become a creditor. But without PPSA registration, they are an unsecured creditor — ranking behind every secured lender if the company fails.

To protect yourself:

1. Document the loan with a written loan agreement or promissory note.
2. Have the corporation sign a security agreement granting you a security interest in corporate assets as collateral.
3. Register a financing statement against the corporation in the PPSA registry.

A properly perfected security interest can make the difference between recovering your investment and losing it entirely in an insolvency.

Frequently asked questions