A debenture is a document that lays down the terms and conditions of a loan, and provides clarity and security to lenders if the borrowing company becomes insolvent. Attaching a floating charge to the debenture offers further benefits, enabling the holder to rank above unsecured creditors when it comes to repayment.
What is a debenture charge?
What is a debenture? Debentures are an instrument available to business lenders in the UK, allowing them to secure loans against borrowers’ assets. Put simply, a debenture is the document that grants lenders a charge over a borrower’s assets, giving them a means of collecting debt if the borrower defaults.
What is a fixed charge?
A fixed charge is a recurring and predictable expense incurred by a firm. Unlike a variable charge, the fixed charge remains the same regardless of the amount of business conducted.
What assets are most suitable for a fixed charge?
A fixed charge is a charge or mortgage secured on particular property, e.g. land and buildings, a ship, piece of machinery, shares, intellectual property such as copyrights, patents, trade marks, etc. A floating charge is a particular type of security, available only to companies.
What is fixed charge in taxi?
The taxi charges in a city consist of a fixed charge together with the charge for the distance covered. For a distance of 10 km, the charge paid is Rs. 105 and for a journey of 15 km, the charge paid is Rs. 155.
Why are fixed charges on a debenture important?
A fixed charge on a debenture offers lenders extra protection for their money if the borrower’s business becomes insolvent. The extra protection comes from material assets like machinery, property and land, and these assets cannot be sold on without the insolvent company either repaying the loan or getting consent from the lender.
What kind of debentures are secured against assets?
When company debentures are secured against assets of the concerned company, these are called secured or mortgage debenture. If the security is on assets of the issuing company, then it is called fixed charge debentures. Contrarily, if the security is not specific but generic assets of the organisation, it is called a floating charge debenture.
What happens if you default on a debenture?
A debenture means that if you default on your loan your lender will be able to claim against assets owned by your business, like laptops, property or machinery (but not your personal assets). In technical terms the lender ‘places a charge against your business assets’ – but it doesn’t actually cost you anything, it’s a legal ‘charge’.
Which is an example of a fixed debenture loan?
For example, a manufacturing company borrowing money through a fixed debenture may have to sign over its main factory building to a creditor. Until the loan is repaid in full, the creditor may restrict the company from selling or subleasing that piece of property.
