A negative pledge is a promise a borrower gives not to grant certain security over its assets to other lenders without the existing lenders consent. It protects the lenders position by stopping the borrower from quietly putting another creditor ahead of them.
Why lenders use it
If a borrower could freely pledge assets to others, an unsecured lender might find itself further back in the queue. A negative pledge helps preserve the balance the lender relied on when agreeing the facility.
What it means for you
If your agreement contains a negative pledge, check what it covers before taking on other secured finance, so you stay within your commitments.
- It limits giving security to others.
- It protects the existing lenders position.
- Read its scope before arranging other finance.
If a term like this appears in your Credicorp agreement and you are unsure how it applies, ask us and we will explain it in plain English.
See also: What is a holding company?, What does going concern mean? and What is a judgment debt?.