Types of security summary

If your company is entering into financing arrangements, use our summary of the various types of security to help you navigate the documents and discussions.

Types of debt

There are various types of debt that a company may need to incur during its life. Short-term debt to assist with cash flow, such as overdraft or revolving credit facilities with their bank, or trade credit provided by suppliers, do not usually need to be secured. For longer-term debt, such as term loans (for a particular sum) or loan agreements (also known as facility agreements), lenders will want to have the debt secured.

Security

Securing the debt gives a lender more ways to recover their money if the company defaults on the loan. Otherwise, if the company fails to pay up, the lender is left trying to recover the debt through the courts, which can be costly and time-consuming. With a secured debt, court action is still an option, but the lender has more direct ways of recovering the debt if they need to.

There are various types of security appropriate for different assets. For a large loan or financing agreement, the lender will expect to take a range of security over all of the company’s assets (known as a “debenture”). At the other end of the scale, are commercial arrangements designed to ensure payment for a specific asset, such as a piece of machinery.

Mortgages and charges need to be registered at Companies House (see our Registration of Charges at Companies House summary), and companies must keep careful records of any financing agreements they enter into. If a company keeps a register of debenture holders, this must be kept up to date (see our Non-statutory Registers model).