HomeSMEs, directors & shareholdersBusiness fundingGetting or giving security

When considering secured lending options, there are many factors to consider. Secured lending comes in many different forms. Our expert team at Francis Wilks & Jones is equipped to assist, however required.

We are experts in commercial finance and can assist both financiers and businesses on any funding issue relating to the taking or giving of security.

What is security?

Security is a deposit or pledge of an item or obligation as a guarantee of an undertaking or loan, to be forfeited in case of default.

Why do lenders ask for security?

Every loan or other advance of funds creates a debt that must be repaid. Unfortunately, there are times when a business may find itself unable to repay the debt in the amounts or on the dates that were originally agreed.

A lender therefore takes security to protect itself and give itself more comfort against non-payment, as the security will give it rights to recover the sums due from a third party or by realising a specific asset that has been charged, or burdened, with the obligation of repaying the debt.

  • should the borrower become insolvent the ‘secured creditor’ has more remedies available to it and a better chance of receiving a payment from the realisation of the assets of the insolvent business or person
  • conversely, there are benefits for the provider of the security as well: it may be possible to obtain a larger loan or advance of funds if security can be offered to the lender. In times of difficulty, a lender may be more willing to allow time or negotiate altered payment terms if it knows that it has the comfort of enforcing its security as a final measure

Why are there so many different types of security?

The different types of security reflect who is providing it and what assets are involved. Security can be given by individuals or corporate entities. It is therefore very important that the partner, shareholders and/or directors of a business, and any individual borrowing or providing security for a business loan, both understand the nature, terms and legal implications of the security they are asked to provide.

The forms of security most commonly used by the providers of business funding in England are:

1. Guarantees

Guarantees are a contractual obligation to pay the debt of another person if the borrower fails to pay. For example a director might be asked to give a guarantee of the obligations of his company, or a parent company might be asked to guarantee the liabilities of its subsidiaries.

The value of a guarantee will depend on the financial strength of the guarantor and their ability to pay, may be limited to a particular amount or unlimited, but does not automatically give the lender any rights to the assets of the guarantor.

2. Legal charge or mortgage

These provide very significant rights over specific assets, including a power of sale. This form of security is used for assets that are identifiable, unchanging and where the use and disposal of the asset can be controlled by the security holder, such as:

  • land and buildings
  • certain types of plant and machinery
  • intellectual property
  • shares
  • money deposited in bank accounts

3. Debenture

In the context of giving and taking security, a debenture is a composite security over all the assets of a company, present and future, including its fluctuating assets such as:

  • stock
  • work in progress
  • cash
  • its more tangible assets such as land, buildings, plant and machinery

4. Assignment by way of security

Whilst certain of the above types of security may include an assignment by way of security, generally the secured assets remain the property of the security provider. Where there is an assignment by way of security certain right over the secured asset rights of the asset pass to the financier for the time a debt is outstanding, for example the right to be paid the proceeds of an insurance policy or proceeds of sale of the asset.

What type of security is right for me?

Depending on your choice of finance or financier there may not be any choice over the security you are asked to provide, but it will be necessary to consider whether the type of security you are being asked to give could adversely impact on your ability to effectively operate your business or could impact on your personal wealth if called upon.

If you are getting security, factors that you may need to consider include:

  • the financial resources of any guarantor, do you need security over the guarantor’s assets to ensure payment
  • what assets are available, where are they located
  • the relative values of the assets being offered in relation to the finance being given
  • does anyone else have a prior security interest in the asset and will that leave anything for you once they have been paid
  • how easy is going to be to realise the value in the asset

If you are giving security, factors that you may need to consider include:

  • what assets are being asked for as security, where are they located
  • the relative values of the assets being offered in relation to the finance being given
  • will giving an asset as security impinge on the ability of the business to trade or use its assets
  • how often will I need to demonstrate the existence of the asset to the financier and will this be onerous
  • if you are giving personal security, how likely is this security to be called upon by the financier and what will be the financial implications for you if it is.

What do I need to do take or get security?

Once you have identified the type of security you want and the subject assets selected, carry out enquiries into the assets to check: who owns the assets, are the assets subject to any other security or are there any other limitations on the ability of the owner to create security over them, what is their current value?

There are legal rules about the form of document to be used for different types of security and how each document is to be signed, so it is essential that these are correctly followed. In addition, there are registration requirements for security given by companies or LLPs and security over certain types of asset, such as land or intellectual property which if not complied with could mean the security is subsequently invalid.

What do I need to do to give security?

It might seem obvious, but check you own the asset: that it is not subject to a lease or hire purchase agreement or jointly owned with someone else. Do you need the permission of anyone else to create a charge, such as a second charge over a house?

If a company is giving security, what are the internal formalities: does shareholder consent have to be obtained or are there restrictions on giving guarantees or granting security. The directors must pass resolutions approving the transactions, and these must be passed in accordance with the constitution of the company and company law. They must be able to form the view that what they are doing is in the best interests of the company and likely to promote the business for the benefit of its shareholders. So appropriate enquiries need to be made to support that decision.

How can our team help?

FWJ’s experienced solicitors can assist you whether you are giving or getting security in connection with business funding.

If you are giving security we can advise you on the terms of any form of security document issued to you and negotiate its terms to ensure that it is on terms that you are fully comfortable with and are acceptable to you and do not inhibit the operation of your lifestyle or your business. We can also assist you in obtaining any necessary consents and ensure that all your internal corporate formalities are properly met and if needs be your shareholders and directors have approved the business giving security.

If you are getting security we can prepare market standard security documents, negotiate the terms for you, carry out the necessary investigations into the ownership of the assets and liaise with other security holders and oversee execution and completion. We can also carry out the necessary registrations to ensure you have valid and enforceable security.

Whatever your questions or issues regarding the giving or taking of security, we have the team of experts to help.

Key contacts

Tim Francis

Tim Francis


Sally Bradshaw

Sally Bradshaw

Senior Associate

Chris Willison

Chris Willison


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