Read before signing the loan agreement, says expert

Debtors must be aware of the options available to lenders in case of default or demand, Alberta Agriculture warns.
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Agriculture is a capital-intensive business, and farmers often enter into financial agreements with lenders with the assets purchased with the loan used as security.

“Unfortunately, farm business managers can fall into a pattern of simply signing documents, and not reviewing all the conditions thoroughly,” said Rick Dehod, agriculture farm financial specialist with Alberta Agriculture and Forestry.

“Sometimes things don’t go as planned, and security gets called on. Farm business managers may be completely unaware that the creditors are exercising their rights — as agreed to in the terms of the agreement — because they did not review the agreement.”

As a debtor, the farm business manager must be aware of his or her responsibilities, and the recourse the lender may have on default or demand. If the debtor has signed the security agreement, then the debtor has agreed to its terms and conditions.

The federal and provincial governments have set out laws with regulations that govern the rights of debtors and creditors, and the priorities of competing security claims.

“Claiming you don’t have an understanding of your responsibilities as a debtor is not a defence of the law or actions of a lender,” said Dehod. “It is imperative that you take the time to read and understand all financial and security agreements prior to signing them.”

In addition, any questions and concerns should be addressed prior to signing the document.

“If you are not sure about something related to the agreement, then seek advice from your lawyer or accountant with experience in such matters,” he said.

Alberta Agriculture has two online resources on this issue at A Guide to Agricultural Security Agreements in Alberta and Alberta Personal Property Security Act: What it Means to Farmers. Both can be found by searching for ‘security agreements.’

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