A debenture is a financial instrument used to raise funds, acknowledging a loan to a company. The provisions of the debenture are declared in a document, such as payment, interest and security of payment amongst others. There are 3 main types of debentures:

  • Debentures issued as a collateral security: issued as security against a loan with a financial institution.
  • Debentures issued for cash: issued at a par, discount or premium in return for cash.
  • Debentures issued for non-cash consideration: issued in return for assets or business.

Debentures issued as a collateral security

In the invoice finance world, the debenture which concerns us, are secured debentures. The security, which can range from a company’s entire assets to a single asset, is taken by the lender over the borrower. Debentures must be registered by Companies House and are completely transparent. The debenture provides security to the lender involved. The debenture is a precaution such that in the event of the borrower entering insolvency proceedings, the lender would retain their security over the asset(s) in question. Debentures are completely unrestrictive and have no ill effects on a company’s business.

How does it work with GapCap?

Unlike traditional factoring where lenders will insist on taking an all asset debenture over their client, it is rare for GapCap to take a debenture as a security. Having said that, it strengthens the confidence of our risk team, fewer verification procedures will be necessary and it can lead to higher limits/lower discounting rates.

In the event of GapCap needing to place a debenture over the company, the process is quick and simple. Once the debenture is signed and returned to GapCap, we will send if off to Companies House to be registered. Debentures can be removed in a matter of days once they become surplus to requirements.

In some scenarios, the client will already have a debenture over them. This is not a problem. GapCap will simply need to get in contact with the provider in question, to gain a debenture waiver, covering the relevant receivable(s).