Welcome!

By registering with us, you'll be able to discuss, share and private message with other members of our community.

SignUp Now!

IMPACT OF A GENERAL SECURITY AGREEMENT on obtaining credit

DENZAL

0
Registered
Joined
Sep 23, 2007
Messages
2
Does anyone have any knowledge or experience with a "General Security Agreement" ( GSA ) being placed by a mortgage lender and its impact on the borrower`s future credit rating?

We have a second mortgage lender that wants us to sign a GSA along with a personal guarantee to be signed by all the borrowers and their spouses. Our lawyer has said that the lender is being overly cautious in the terms of the personal guarantee and that " we could forget being approved for any future credit application even if it was for a cup of coffee " because of this GSA. The lender says that this is not the case and that a GSA is standard requirement of a personal guarantee. I went on the internet and researched a bit on the aspect of a GSA.. See this:

Under the Agreement, the borrower grants the lender a security interest in all of the borrower`s present and after-acquired personal property including inventory, equipment, accounts and book debts, and all proceeds therefrom, as security for loan financing, operating lines, or other credit facilities advanced by the lender to the borrower.

I understand that the GSA affects a borrower`s personal credit status even if it were taken by the corporation as it shows up on the borrower`s personal credit report and serves as a "lien" on future property purchases.

Any experience or advice ?
 

garbonn

0
Registered
Joined
Aug 30, 2007
Messages
5
QUOTE (DENZAL @ Sep 23 2007, 05:40 PM) Does anyone have any knowledge or experience with a "General Security Agreement" ( GSA ) being placed by a mortgage lender and its impact on the borrower`s future credit rating?

We have a second mortgage lender that wants us to sign a GSA along with a personal guarantee to be signed by all the borrowers and their spouses. Our lawyer has said that the lender is being overly cautious in the terms of the personal guarantee and that " we could forget being approved for any future credit application even if it was for a cup of coffee " because of this GSA. The lender says that this is not the case and that a GSA is standard requirement of a personal guarantee. I went on the internet and researched a bit on the aspect of a GSA.. See this:

Under the Agreement, the borrower grants the lender a security interest in all of the borrower`s present and after-acquired personal property including inventory, equipment, accounts and book debts, and all proceeds therefrom, as security for loan financing, operating lines, or other credit facilities advanced by the lender to the borrower.

I understand that the GSA affects a borrower`s personal credit status even if it were taken by the corporation as it shows up on the borrower`s personal credit report and serves as a "lien" on future property purchases.

Any experience or advice ?

Hi Denzal
Your question is definitely one for the experts. I have used a GSA but only on my own assets to secure myself in first position ahead of everyone else except for the banks. From laymans perspective maybe the issue is that all of your assets would be encumbered by the one particular lender and any new lenders would shy away as they would lose the 1st position status.
Regards
Garet BONN
780-970-8671
[email protected]
 

Peter

0
REIN Member
Joined
Aug 22, 2007
Messages
58
QUOTE (DENZAL @ Sep 23 2007, 04:40 PM) Does anyone have any knowledge or experience with a "General Security Agreement" ( GSA ) being placed by a mortgage lender and its impact on the borrower`s future credit rating?

We have a second mortgage lender that wants us to sign a GSA along with a personal guarantee to be signed by all the borrowers and their spouses. Our lawyer has said that the lender is being overly cautious in the terms of the personal guarantee and that " we could forget being approved for any future credit application even if it was for a cup of coffee " because of this GSA. The lender says that this is not the case and that a GSA is standard requirement of a personal guarantee. I went on the internet and researched a bit on the aspect of a GSA.. See this:

Under the Agreement, the borrower grants the lender a security interest in all of the borrower`s present and after-acquired personal property including inventory, equipment, accounts and book debts, and all proceeds therefrom, as security for loan financing, operating lines, or other credit facilities advanced by the lender to the borrower.

I understand that the GSA affects a borrower`s personal credit status even if it were taken by the corporation as it shows up on the borrower`s personal credit report and serves as a "lien" on future property purchases.

Any experience or advice ?


Hi Denzal,

A personal guarantee is pretty typical when you are taking a loan in a corporate name as the lender is requesting that the directors personally guarantee the loan. Its really nothing more than a promise to pay if the corporation does not. Quite often, the GSA is simply a part of the security package and the lender is asking for not only your personal promise to pay, but also some security to back the obligation in the personal guarantee. The GSA is just that, and it is registered through the personal property registry.

I don`t think that the GSA reflects on your credit bureau though only equifax could confirm that. However if it does, the GSA itself would not limit your ability to borrow as itself, is not a loan. It is just security to a loan that should have already been disclosed and included in your loan application as with the personal guarantee, it is a personal obligation that should be disclosed. Your lawyer is correct in that if the next lender also requires a GSA, you will not be approved as those assets have already been pledged as security to someone else.

Thanks, Rebecca (for Peter Kinch)
 

George

0
Registered
Joined
Sep 29, 2007
Messages
130
Good morning Denzal,

I typically don`t see GSA`s due to real estate purchases unless they have been put on the company by the owner(s). Generally the mortgage itself and personal guarantees provide adequate security. The GSA`s that I see are more typical for corporate lines of credit/non-real estate debt unless the real estate represented a significant purchase. While I personally would be very reluctant to provide the GSA unless the company holding the property had no intention of acquiring additional property, in my family`s case we do have one of our companies where there is a GSA from a line of credit and this has not restricted us from acquiring smaller real estate purchases (less than 6 units). This also ignores the GSA`s put on corporations from related parties (i.e. owners or their respective holding companies) which are relatively common. While the GSA may or may not affect my future purchases, I`d shy away from it as there is simply one more restriction down the road in case I`m looking to acquire another line of credit for example or other form of non-traditional debt.

Warm regards...

George
 
Top Bottom