How Security and Charges Work on Commercial Lending

Fixed charges

A fixed charge attaches to a specific, identified asset — typically property, land, or high-value plant and equipment. The company cannot sell or dispose of the charged asset without the lender's written consent. If the company defaults, the lender can appoint a receiver or enforce its charge to sell the asset and recover the outstanding debt from the proceeds.

Because a fixed charge gives the lender priority over a defined asset, it is regarded as strong security. A lender with a fixed charge over a freehold property, for example, ranks ahead of unsecured creditors and behind only prior fixed charge holders and certain preferential creditors in an insolvency.

Floating charges and debentures

A floating charge covers a class of assets that changes from day to day — stock, book debts, cash in bank accounts. The company is free to deal with those assets in the ordinary course of business until a crystallisation event occurs, typically default or the appointment of an administrator. At that point the charge crystallises and attaches to whatever assets of that class exist at the time, becoming in effect a fixed charge.

A debenture is a single security document that typically grants both a fixed charge over specific assets and a floating charge over the remainder of the company's assets, giving the lender comprehensive security coverage. Where a debenture is in place, the borrowing company will find it difficult to grant further security to any other lender without the existing lender's consent, which is an important operational consideration.

Registration at Companies House

Under the Companies Act 2006, a charge created by a company must be registered at Companies House within 21 days of creation. Failure to register within that window renders the charge void against a liquidator, administrator, or any creditor, meaning the lender would lose its priority position and rank as an unsecured creditor. The lender or its solicitors almost always handle registration, but directors should verify the charge appears on the company's register once the facility is live.

Personal guarantees

A personal guarantee (PG) is a separate contractual commitment by a director or shareholder to repay the loan if the company cannot. It is not a charge over a specific asset but a personal liability. If the company defaults and the lender enforces the guarantee, the guarantor becomes personally liable for the outstanding sum, which can expose personal assets including property.

Directors should take independent legal advice before signing a personal guarantee. Key terms to scrutinise include whether the guarantee is limited or unlimited, whether it is joint and several with other guarantors, and what triggers the lender's right to call on it. Some lenders require a charge over the guarantor's principal residence as additional backing, which has significant personal financial implications.