• 14. (1) A lender must, when making a loan referred to in any of paragraphs 5(1)(a) to (c), take valid and enforceable first-ranking security in the assets of the small business whose purchase or improvement is to be financed by the loan.

• (2) If the purchase or improvement of the assets of the small business is to be financed by a loan and another source of financing, the security taken by the lender in those assets must be equal in rank to that taken in those assets in relation to the other source of financing.

• (3) In the case of a loan referred to in paragraph 5(1)(b), or a loan referred to in paragraph 5(1)(c) for the financing of computer software, the lender may take security in any assets of the small business in respect of which the loan is made.

• (4) If, within 30 days before or after the day on which a loan is made, the lender makes one or more conventional loans that are term loans to the same borrower to finance a purchase or improvement that would be eligible for a loan, the lender

  • (a) must, in addition to any security otherwise required by this section to be taken, take security in the same assets and equal in rank to that taken to secure the conventional loan or loans; and

  • (b) may take security to secure the conventional loan or loans on the same assets and equal in rank to that taken to secure the loan.

• (5) If there is existing security in an asset whose purchase or improvement is to be financed by a loan, the security taken by the lender in that asset must be of the highest available rank, but if the existing security is the result of the application of a provision respecting subsequently acquired property, the lender must obtain all necessary postponements to ensure that the security in the asset is a first ranking charge.

• (6) If, in the case of a loan referred to in paragraph 5(1)(b), the borrower and landlord are not at arm’s length, the loan must be secured by a mortgage on the real property or immovable that is the subject of the leasehold improvement.

15. Primary security must not be replaced by a different type of security, but an asset that is the object of a primary security may be substituted at any time for another asset of the small business in respect of which a loan is made that is of equal or greater value at the time of replacement.

• 16. (1) The lender may, in respect of a loan, release primary security in an asset if

  • (a) the loan is in good standing; and

  • (b) the outstanding amount of the loan has been reduced by the amount of the original cost of the asset that is to be released.

• (2) The lender may also release primary security in an asset at any time if

  • (a) the asset is sold by the borrower to a person at arm’s length from the borrower and all of the proceeds of sale are applied to reduce the outstanding amount of the loan; or

  • (b) the asset is sold by the borrower to a person not at arm’s length from the borrower and

    • (i) the borrower provides to the lender an appraisal of the value of the asset made at any time within 180 days before the date of the sale by an appraiser who at that time met the professional qualifications and arm’s length requirements of subsection 9(1) or (2), as the case may be, and

    • (ii) the outstanding amount of the loan is reduced by the greater of the proceeds of the sale and the appraised value of the asset.