Loan

How BC law treats it

A commercial loan is governed mainly by its contract. Common documents are a loan agreement or commitment letter, a promissory note (governed by the federal Bills of Exchange Act, RSC 1985, c B-4), a general security agreement registered in the BC Personal Property Registry under the Personal Property Security Act, RSBC 1996, c 359, a mortgage of land, and guarantees from owners. A guarantee is not enforceable in BC unless it is evidenced by a writing signed by the guarantor (Law and Equity Act, RSBC 1996, c 253, s. 59(6)). Interest is regulated federally. Under the Interest Act, RSC 1985, c I-15, s. 4, where a rate is expressed for a period of less than a year and the contract does not state the equivalent annual rate, no more than 5 percent a year is recoverable. The Criminal Code, RSC 1985, c C-46, s. 347 makes it an offence to enter into an agreement for interest at a criminal rate, which has been 35 percent APR since January 1, 2025. Under the Criminal Interest Rate Regulations, SOR/2024-114, a business loan to a borrower that is not an individual is capped at 48 percent APR if it is between $10,000 and $500,000, and is exempt from the cap if it exceeds $500,000. Consumer credit disclosure rules in BC's Business Practices and Consumer Protection Act protect individuals borrowing for personal purposes, not business borrowers. Whether money was advanced as a loan or as an equity investment is a frequent source of dispute. Courts look at the parties' intentions and the documents: a fixed repayment obligation and interest point to a loan, while a share of profits, an ownership interest and risk of loss point to an investment. A claim to recover a loan payable on demand generally has a two year limitation period under the Limitation Act, SBC 2012, c 13, which runs from the first day the borrower fails to repay after a demand is made (s. 14).

What it means for your business

Loans fund growth, acquisitions and real estate, but their terms decide how much control the lender has when things go wrong. Default clauses, financial covenants, security and personal guarantees can give a lender the right to demand repayment and enforce against business assets or an owner's home. Founders lending to their own company, or friends and family funding a startup, should document whether the money is a loan or an investment to avoid costly disputes later. Example: A family member advances $150,000 to a Squamish brewery by bank transfer with no paperwork. When the business struggles, the parties dispute whether the money was a loan repayable on demand or an investment for shares, and the court must decide from emails and conduct.

Risks and common mistakes

Advancing or accepting money without a written agreement stating whether it is a loan or an equity investment. Stating interest as a monthly rate without the equivalent annual rate, which can cap recoverable interest at 5 percent under Interest Act s. 4. Failing to register a security interest in the Personal Property Registry, which can lose priority to other creditors or a trustee in bankruptcy. Signing an unlimited personal guarantee without negotiating a cap or release. Charging fees and interest that together approach the criminal interest rate.