Security arrangements

Taking out a loan or receiving investment where a security arrangement is involved? Or maybe you are providing a loan or making an investment and would like to secure your funds? We'll make sure you fully understand the terms and that they suit your business. If you're a lender, we’ll advise on the best ways to protect your funds.

When you’re borrowing or lending money, having an appropriate security package in place is key to managing risks. For lenders, having security ensures you’re covered if the borrower hits financial trouble.

For businesses, offering security could unlock better deals and more financing options. It’s important to understand how security works and make sure everything is set up correctly – for everyone involved.

3 key legal considerations when offering security for investment

1. Do you already have existing security in place?

If you’ve previously granted security over any of your assets, you’ll need to check the terms. Many security agreements include a ‘negative pledge’, preventing you from granting additional security without consent. If this applies, you may need approval from the existing security holder before proceeding.

2. Does granting security align with your director duties?

As a director, you must act in a way that promotes the success of the company for its shareholders. If you’re offering security, especially for another company’s obligations, you may need shareholder approval to ensure compliance with your duties.

3. Which assets are you willing to offer as security?

Before agreeing to a security arrangement, carefully consider which of your assets you’re prepared to secure against the loan. It’s also essential to confirm that you own the assets outright before granting security over them.

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3 key legal considerations when receiving security for investment

1. Does the borrower already have existing security?

Before taking security, check whether the borrower has already granted security over its assets. If existing security is in place, the borrower may need consent before granting you security. In these cases, it’s important to assess whether a deed of priority or intercreditor agreement is needed to clarify which lender has security over which asset(s) and the order of repayment between creditors.

2. Have you registered the security?

For your security to be enforceable against a corporate borrower, it must be registered at Companies House within 21 days. Failure to do so means your charge could become void against administrators, liquidators, and other creditors. We can handle the registration process for you, ensuring your security is properly recorded and legally effective.

3. How will enforcement work if needed?

If the borrower defaults, how will you enforce your security? The terms of enforcement are typically set out in the security agreement. We have extensive experience advising on security arrangements and can guide you through the options available if enforcement becomes necessary.

Common types of security arrangements & what they mean for businesses

Charges (fixed & floating)

A charge gives a lender the right to act if the borrower defaults. It’s often documented in a debenture and comes in two forms:

Fixed charge – tied to a specific asset (e.g., property, machinery), meaning the borrower cannot sell or dispose of the asset without the lender’s permission.
Floating charge – covers a pool of changing assets (e.g. stock and cash). If certain conditions are met, the floating charge ‘crystallizes’ into a fixed charge.

Mortgages

A mortgage involves transferring title to an asset to the lender as security for a loan, making it easier for the lender to recover funds if the borrower defaults. There are two types:

Legal mortgage – transfers full legal ownership of the asset to the lender (available for certain assets,such as land).
Equitable mortgage – transfers only beneficial ownership, meaning the borrower still retains legal title.

Common types of security arrangements & what they mean for businesses

Why choose 3volution?

Security arrangements can be tricky, but that’s where we come in. At 3volution, we specialise in guiding businesses and investors through these arrangements with confidence. Whether you’re securing funding, receiving investment, or providing a loan, we’ll create a security package that meets your needs.

Need expert advice on security arrangements? Get in touch with us today using the form below and let’s talk about your options.

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