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.