– Gemma Simonett, Barrister & Solicitor, CR Lawyers –
Historically speaking, businesses that hold a license to operate – including commercial fisherman with a license from the Department of Fisheries and Oceans (DFO) – haven’t been able to use that license as security for a loan. Thanks to a proactive DFO initiative, though, that’s slowly beginning to change.
The law does not recognize licenses as actual property; they’re seen as a privilege, and therefore not a tangible asset. This has meant that banks and other financial institutions were unwilling to lend money using a license as security. Although it’s widely accepted that most licenses indeed have value on the market, the issuing body’s ability to decline a transfer or new license holder make lenders uncertain regarding the enforceability of their security.
There has, however, been a change in terms of securing a loan with a license, and this change has come from within the commercial fishing industry. A few years ago, the DFO created a new policy to address this conundrum. In order to allow recognized financial institutions to provide financing for commercial fisherman, the DFO created the “Notice to Department of Fisheries and Oceans of a Financial Arrangement with a Lender.” Once both the borrower and the lender complete this form and it’s registered with the DFO, the DFO will advise the lender of certain activity relating to the license, and the borrower requires the lender’s authorization to make certain changes to the license.
Originally, this allowed only recognized financial institutions to register their security against a commercial fishing license. Recently, however, it’s been expanded to allow private lenders and other creditors (like packing plants and credit-providing suppliers) to secure their interests against a license. Allowing this security not only makes it easier for commercial fisherman to obtain financing, it also indicates an overall shift in the government’s policy toward lending in general. This is where it really gets interesting.
In recent years, banks have been less willing to lend and have been stricter on the security they’ll accept on a loan. Typically, banks will only lend when they can obtain security against hard assets such as property or equipment, which makes it very difficult for potential purchasers to obtain the financing to carry on an existing business or to start a new business.
Banks have already seen the value in this new DFO program, however, and have started allowing borrowers to use their commercial fishing licenses as security. This is the first indication of flexibility in lending in a long time.