A debenture is a document by which a company grants a lender security over its assets. In UK business lending, it is one of the common ways a secured lender protects its position, giving it a claim over company property if the agreement is not honoured.
What it covers
A debenture can create a fixed charge over specific named assets, a floating charge over a changing pool of assets such as stock or debtors, or a combination of both. It is registered at Companies House so that others can see the lender's interest. Because it is granted by the company, it relates to company assets, not the personal assets of directors.
Why it matters
- It tells you whether finance is secured, and over what.
- A registered charge affects the order in which creditors are paid if the company fails.
- Existing debentures can affect a company's ability to grant security to a new lender.
In context
Whether any security applies to your agreement is set out in your own documents, and you should understand it before signing. A debenture is distinct from a personal guarantee: a debenture sits over company assets, whereas a personal guarantee reaches an individual's own property. If you are unclear what security, if any, attaches to a facility, ask the lender to explain it in plain terms.
See also: Glossary: amortisation, Glossary: default (business lending), What is a debenture?.