Alternative Security

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You have been asked to lend money to a business but you have concerns over its financial viability and stability. How can you secure and protect your interests?

There are a number of alternative lending routes, below are some recent examples we have worked on:

Securing Borrower Assets

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.

Using connected Assets

Businesses often need money to invest in and maintain the running of its business, lenders are often happy to lend on this basis, however, want some form of security and protection for such loans. Third Party lending offers protection from third parties connected to the borrower, another company they own, other shares they hold and even their personal assets.

A loan agreement is drafted to govern the lending with borrower-heavy contractual protections, however, the addition of a physical asset to provide security adds another layer of protection for you.

Start-ups and ‘one man band’ companies often have sole director/shareholders and such individuals may personally have very little assets, rendering a personal guarantee or charge over property owned by the borrower either impractical, impossible or insufficient.

You can, under these circumstances, consider the following:

This involves negotiating with a number of interested parties to ensure the effective grant and perfection of the security

Using connected Properties

A third party (whether an individual or company) can grant security over land or properties owned by the third party for the liabilities owed to the lender by the business.

Third Party Charges over Land will usually have enhanced rights of enforcement and protections as well as specific property enforcement powers, such as rights of receivership and powers of sale to offer the lender the maximum contractual protections over the land/property.

Property Valuation

The value of properties can fluctuate with the market and it is important to consider this when choosing security.

Using connected Companies

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 offer any or all of the following protections:

  • a mortgage over property owned by the company;
  • fixed charges over other assets such as plant and machinery; and
  • a floating charge over all current and future assets of the Company not otherwise mortgaged or charged.

Company Protection

A Third Party Debenture will cover a range of covenants relating to the business and its assets, these often include investment, property, plant and machinery, contract, intellectual property and book debt covenants (depending on the size and nature of the third party business). They will also include powers of sale and rights of receivership by way of enforcement of the security.

Company Valuation

The value, profitability and success of companies can fluctuate on a range of factors and it is important to consider this when choosing security.

Using connected 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 liability of the borrower with 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 ensuring the prohibition of sale, transfer or granting of any security over the shares.

Contractual Protection

The charge can be drafted to give all of the beneficial rights of the shares to the lender, for example, over dividends, interest and voting rights, when a debt becomes enforceable. There will also be a power of sale and rights of receivership granted.

Share Valuation

The value, profitability and success of companies can fluctuate on a range of factors and it is important to consider this when choosing security.

Using connected Personal Assets

A family member or business partners of the borrower can also personally guarantee and indemnify lending, where such person guarantees their personal assets and promises to pay where the borrower fails to do so.

Personal Security

Guarantees and Indemnities will impose restrictions on the guarantor personally. We have acted for lenders and borrowers where the borrower is a start up company with little assets by way of security and the directors could not provide sufficient security by way of a personal guarantee but had a well established parent company that could act as guarantor as security for the lending.

Personal Asset Valuation

Similarly to third party charges, personal assets can fluctuate, however, unlike third party charges the lender will not have a charge over a specific property or asset owned. A guarantee is a promise to pay and the security is provided contractually to the lender by way of representations, warranties and covenants.

Personal Guarantees

We have acted for a variety of directors required to give a personal guarantee as security on lending. This can also achieve security in private lending if the director/shareholder has personal assets that can be secured against.