What is a debenture, and why does the funder want one?

A debenture is a legal document that gives a funder security over your company's assets, usually all of them, through a charge registered at Companies House. If the company does not repay, the debenture gives the funder rights over those assets. It is standard on bank lending, invoice finance and many larger business loans, and it appears on your company's public record.

What a debenture covers

GOV.UK defines a charge as "the security a company gives for a loan." A debenture is the usual way a company gives a broad charge, and it typically includes:

• A fixed charge over specific assets such as property or equipment. The company usually cannot sell them without the funder's consent.
• A floating charge over assets that change day to day, such as stock. The company can usually keep dealing with them until the charge "crystallises", for example when a receiver is appointed.

The Insolvency Service's handbook describes exactly this: a secured creditor may hold "a debenture agreement containing floating (or fixed and floating) charges", and on the appointment of an administrative receiver "the floating charges will crystallise."

Exact coverage is in the wording, so read the schedule of assets.

Registration at Companies House

A company charge must be delivered to Companies House within "21 days beginning with the day after the date of creation of the charge". GOV.UK says any person "interested in the charge" can register it, and that filing costs £14 online or £24 on paper.

If it is not registered in time, the charge is void as security against a liquidator, an administrator or a creditor of the company. That is why funders take registration seriously, and why your company's charge record matters to the next funder who looks at it.

Everything filed, including a copy of the charge document, goes on the company's public record.

Why it matters to you

• Future finance. A new funder will see the existing charge and may want the first funder's consent, or to rank behind them.
• Selling assets. A fixed charge can stop you selling an asset without consent.
• Insolvency. A receiver appointed under the charge must deal with the charged assets "in such a way as to recover the money due to the secured creditor."

Sterling's take: a debenture is normal paperwork, but it is not small print. Ask what it covers and what it would stop you doing.

Clearing it when you repay

GOV.UK: "A charge is 'satisfied' when it's paid off." You do not have to tell Companies House, but it warns that "any satisfied charges left outstanding on our records could have a negative effect on your company." Use form MR04.

What to do next

Check your company's existing charges on Companies House before you apply anywhere, so nothing surprises the funder. Read do I need security for a business loan for how debentures sit alongside personal guarantees, and work out what a secured loan would cost with the loan repayment calculator.