Alternative forms of security for a loan

We help clients protect their loans by taking security over assets to reduce the risk of loss if the borrower defaults. Drawing on our experience, we identify the most appropriate and effective form of security for the particular loss.

The most common form of security on lending is over land/property by way of a mortgage/charge or corporate assets by way of debentures.

Security if the borrower owns a business

Start-ups and ‘one man band’ companies often have sole director/shareholders with few personal assets. This can make a personal guarantee or charge over property owned by the borrower impractical, impossible or insufficient.

In these circumstances, you may want to consider:

• a charge over their family or partner’s land/property -A third party (whether an individual or company) can grant security over land or property owned by them for liabilities owed by the business to the lender. Third party charges over land will usually provide enhanced enforcement rights and protections, including specific property enforcement powers such as rights of receivership and powers of sale, giving the lender greater contractual protection over the land/property.
• a charge over a subsidiary or related company’s assets - the borrower’s family may own businesses, or the borrower may have a parent or sister company that can grant security to you over its assets for the liabilities owed to the lender by the borrower. This can be in the form of a mortgage over property owned by the company and/or fixed charges over other assets such as plant and machinery and/or a floating charge over all current and future assets of the Company not otherwise mortgaged or charged.
• an equitable charge over their family or partner’s share portfolios - where a lender is lending to a person or company who holds shares in a company with sufficient assets, but the other shareholders do not want to share in the borrower's liability through a formal debenture over the whole company, the individual/company holding those shares (whether the borrower or a third party) can grant an equitable charge over the shares, restricting their sale, transfer or use as security.

This involves negotiating with a number of interested parties to ensure the security is effectively granted and perfected.

Personal Guarantees

We have acted for a variety of directors required to give a personal guarantee as security for lending. This can also provide security for private lending where the director/shareholder has personal assets against which security can be taken.

A family member or business partner of the borrower can also personally guarantee and indemnify the lending, providing a commitment to use their personal assets to meet the liability if the borrower fails to do so.

Corporate guarantors

Guarantees and indemnities will impose restrictions on the guarantor or expose them to personal liability. We have acted for lenders and borrowers where the borrower is a start-up company with few assets available as security and the directors cannot provide sufficient security through a personal guarantee, but a well-established parent company can act as guarantor for the lending.