How to secure your loan

Improving your chances of your loan being repaid

When it comes to lending, ensuring that your loan is protected is paramount.

Securing your loan isn't just a formality – it's a vital step in protecting your investment. Without adequate security, you're at risk of losing some, or all of your money if the borrower defaults.

At Gannons, we offer comprehensive advice on a variety of security options, ensuring you choose the most appropriate form for your needs. Our expertise in selecting the best forms of security, tailored to your specific circumstances, ensures that your loans are always well-protected.

Different Types of Security to Use and When to Use Them

There are a few different forms of security available for a lender to use (whether the borrower is an individual or a company).

Where the borrower is a company and/or an individual

• Charge over a property -  while a charge doesn’t transfer the legal title, it grants the lender significant rights over the asset. This means you may, where there is default which is not remedied, ultimately appropriate the property or asset, along with its sale proceeds, to settle the debt. It’s a versatile option suitable for both real estate and movable assets. Much however depends on whether you have a 1st charge over an asset. If there is already a mortgage over a property, you can only have a 2nd charge at best, and if there is unlikely to be net equity (value) left in the property after the 1st charge is paid off, your security will not result in you getting your loan money back.
• Pledge - in a pledge, the asset is delivered to the lender's possession until the debt is paid. Should the borrower default and fail to make payment on the loan, the lender can sell the asset after giving sufficient notice. This method is particularly effective for movable assets, providing a tangible assurance of debt recovery through physical possession.
• Personal guarantee - where an individual promises to fulfil the loan obligations if the borrower defaults. This extra layer of security can be appropriate in smaller or more personal lending situations.

Where the borrower is a company

• Debenture -  creates a charge over all of the assets of a company. This is the most secure form of security a lender can take over a company because it charges all company assets, both fixed (like properties) and floating (like stock). This ensures that in the event of a default, you have priority access to the company’s assets and sale proceeds.
• Charge over shares - if the borrowing company lacks substantial assets, a share charge over the parent company’s shares can be highly effective. This enables you to take control of the parent company if necessary. There are some companies which lenders should be wary of taking share charges against however, in case they incur certain liabilities.

The Importance of registering a charge

Registration of the security which the lender intends to rely on is obviously important. But so many people get this wrong and find the security is not enforceable. Without the correct registration the lender’s security is effectively useless. That is why at Gannons we ensure that all the requirements for perfecting the relevant security are met.