What Is a Debenture?
A debenture is a legal document that records a loan agreement between a company and a lender. It is commonly used in business finance to provide security over company assets. If the company defaults on the loan, the lender can seize assets to recover the debt.
Debentures are often used by banks, private lenders, and investors to protect their interests when lending money to a business.
Types of Debentures in the UK
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Fixed Charge Debenture
- Secured against specific assets (e.g., property, machinery).
- The company cannot sell or dispose of these assets without the lender’s permission.
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Floating Charge Debenture
- Covers general company assets (e.g., stock, cash, accounts receivable).
- The company can trade assets freely until it defaults.
- If the company becomes insolvent, the floating charge "crystallises" and becomes a fixed charge.
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Convertible Debenture
- Can be converted into company shares instead of repaying the loan in cash.
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Non-Convertible Debenture
- Must be repaid in full with interest; cannot be converted into shares.
How Do Debentures Work?
- The lender registers the debenture with Companies House.
- The company continues operating but must follow loan terms.
- If the company fails to repay the loan, the lender can:
✅ Take ownership of secured assets.
✅ Appoint an administrator to recover debts.
✅ Enforce the sale of assets.
Benefits & Risks of Debentures
✅ For Lenders:
- Provides security for loans.
- Priority claim on assets if the company goes bankrupt.
⚠️ For Borrowers (Companies):
- Restricts business flexibility (especially fixed charge debentures).
- If default occurs, assets can be seized or sold.
How Fraser Bond Can Help
Fraser Bond offers expert advice on business finance, property-backed lending, and investment opportunities. Whether you’re securing a loan with a debenture or investing in corporate finance, our specialists can guide you.
Need Finance or Investment Advice? Contact Fraser Bond Today
Discover how debentures can support business growth and protect investments. Speak to Fraser Bond’s experts for tailored financial solutions.
