In terms of the business environment, Security refers to an asset owned by the business or an individual which is pledged in support of finance.

Finance which is backed by security tends to have a lower rate as the risk to the lender is less, as the lender can sell the asset securing the loan should the borrower not repay.

This Security can take many forms, the most common Security being Property, machinery, vehicles, and monies owed to the business (debtors).

A personal guarantee given by a business director will sometimes be referred to as tangible security, but if not backed by security (eg personal property) the finance would not be considered as secured.

Personal Guarantees & Directors Guarantees

The classic definition of a personal guarantee is an individual’s (in this case the directors of the business) legal promise to repay the debt. Providing a personal guarantee means that if the business get into a position that means they are unable to repay the loan, the individual guarantor is then personally responsible. These are required in 90% of unsecured business loans.

Legal Charge

A Legal charge on a property is often required by lenders in order to secure the debt. This secures the debt against your home or business property you own. Charges means that one could lose ones residential home if the loan is not repaid (foreclosure). Once a Legal charge has been made, a creditor can apply to the court for another order forcing you sell your property.

Debenture

A Debenture usually provides a lender with a fixed and floating charge over the assets of the business. These assets can include property, stock, trade debtors, and any other assets owned by the business. Whilst the lender will have first recourse to these assets should the borrower not repay, the business can usually continue to trade its working assets (sell and buy stock and receive money from clients). The wording of any Debenture should be carefully checked and legal advice taken where appropriate as what is covered by the Debenture can vary between lenders.

It can provide the lender with comfort to provide lending that they may not be willing to provide without the benefit of recourse to the business assets.

Unilateral/Equitable Charge

This is similar to a debenture, and is a floating charge over a property. A unilateral notice will show up on the charges/land registry and is used to register any interest which a third party may have in a particular property or estate, and notify the other party of its existence.

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