What is a debenture, and should I sign one?
A debenture is a charge registered over your company’s assets, giving the lender a claim on them ahead of unsecured creditors if things go wrong. It is registered at Companies House, so it is public, and any other lender will see it.
Fixed and floating
A fixed charge attaches to specific things: a named machine, a property, the book debts. You cannot sell or dispose of them without the lender’s agreement.
A floating charge hovers over a changing class of assets such as stock and equipment. You trade normally until something goes wrong, at which point it crystallises and fixes onto whatever you hold that day.
Most debentures contain both.
Why it matters more than the rate
A debenture does not cost you anything month to month, so it is easy to wave through. What it does is use up security. The next lender you approach will see it, and a first-ranking charge already taken by someone else narrows what anyone else will do.
If you expect to need further funding, giving a debenture for a small facility can be an expensive trade made for a cheap loan.
Where you will meet one
Invoice finance almost always involves one, because the facility is lending against your debtor book and needs a claim on it. Larger term loans often do. Small unsecured facilities usually do not, relying on a personal guarantee instead.
How it is registered
A charge must be registered at Companies House within 21 days of being created, or it is void against a liquidator, an administrator and the company’s other creditors. Once registered it appears on the public record with the lender’s name, the date and a short description of what it covers. Anyone can look it up free, and lenders always do.
The registration rules changed in April 2013, so a long-established company may find its older charges recorded in a different format from its newer ones.
When the borrowing is repaid
Clearing the facility does not take the charge off the register by itself. A statement that the charge has been satisfied has to be filed, after which the record shows it as satisfied. If you have repaid a lender and its charge still shows as outstanding, chase it, because the next lender will read it as live.
It is sometimes negotiable
The reach of a debenture can occasionally be narrowed, particularly on a small facility or where another lender already holds security. You can ask whether a lender would take a fixed charge over specific assets only, or agree how it ranks against an existing lender in a deed of priority. The answer is often no, but asking before you sign costs nothing.
Common questions
Can I check whether my company already has a charge registered?
Yes. Search for your company on the Companies House register and open the charges section. Every registered charge is listed as outstanding or satisfied. Check before you apply, because old charges from facilities repaid years ago are a common surprise.
Is a debenture the same as a personal guarantee?
No. A debenture is security given by the company over the company’s assets. A guarantee is a promise given by a director personally. A lender can ask for both, and on larger facilities often does, but they protect it in different ways and fall on different people.
What is a negative pledge?
A clause, often inside a debenture, in which the company promises not to give security to anyone else without the lender’s consent. It is why a later lender usually needs the first one to agree before it can take security of its own. Breaching one can put the first facility in default.
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