What security might lenders take (asset-backed, debenture, director guarantee)?
Quick answer
Lenders commonly take security to reduce risk and improve the chances of repayment; the main forms are asset-backed security, debentures (including floating and fixed charges) and personal or director guarantees.
Which security a lender requires depends on the loan type, the borrower’s business structure, asset profile and the lender’s risk appetite.
Best Business Loans is an introducer that helps UK businesses identify likely security requirements and connect with appropriate lenders or brokers; we do not supply loans directly.
What does “security” mean and why lenders take it?
Definition and purpose
Security is a legal claim a lender can use to recover money if a borrower cannot repay a loan.
It reduces lender risk, can lower borrowing costs, and may increase the lending amount available to a business.
Commercial vs personal security
Security can be taken over business assets (commercial) or provided personally by directors or owners.
Secured loans are common for asset finance, equipment lending, invoice finance and some business overdrafts.
How security affects borrowing options
Lenders use security to set terms, interest rates, covenants and enforcement rights.
Understanding likely security expectations helps businesses choose suitable lenders and avoid surprises during underwriting.
Asset-backed security: types, benefits and limits
What is asset-backed lending?
Asset-backed loans are secured against specific, tangible assets such as machinery, vehicles, stock, property or receivables.
Lenders value the asset and lend up to a percentage of that value, known as the advance rate.
Common asset types
Typical assets used include plant and machinery, commercial vehicles, stock and work-in-progress, and unpaid invoices.
Property (freehold or leasehold) is often used for higher-value commercial mortgages or second-charge loans.
Advantages for borrowers and lenders
For lenders, an identifiable asset reduces loss if the borrower defaults, and recovery is generally quicker.
For borrowers, asset-backed finance can deliver larger, cheaper funding than unsecured borrowing, provided asset values are sufficient.
Limitations and practical issues
Asset values depreciate and may be insured or subject to third-party claims, reducing the lender’s recoverable position.
Some assets are harder to repossess or sell quickly, which affects the advance rate and finance cost.
Debentures, floating and fixed charges explained
What is a debenture?
A debenture is a formal security document that creates one or more charges over a company’s assets in favour of a lender.
It sets out the lender’s rights and typically registers at Companies House to be legally effective and public.
Fixed charge vs floating charge
A fixed charge attaches to specific assets (e.g., a factory or a particular machine) and prevents disposal without the lender’s consent.
A floating charge covers a changing pool of assets (e.g., stock or receivables) and “crystallises” to become fixed if the borrower defaults.
Priority and insolvency implications
Fixed-charge holders generally rank ahead of floating-charge holders and unsecured creditors in insolvency.
There are statutory preferential creditors and a “prescribed part” to protect unsecured creditors, which affects recoveries under a floating charge.
Practical checklist when offered a debenture
Check which assets are charged, whether the charge is fixed or floating and how the document affects day-to-day trading.
Ask for clarity on events of default, fees, enforcement remedies and registration status at Companies House.
Director and personal guarantees: when and what they cover
Why lenders ask for director guarantees
Director guarantees provide extra reassurance where business cashflow or asset coverage is limited, especially for smaller companies.
They create a personal liability for directors, improving the lender’s overall recovery prospects.
Types of guarantees and what they include
Guarantees may be unlimited or capped, and can be primary (director pays straight away) or secondary (only after company insolvency).
Some guarantees include cross-guarantees among multiple directors or specify joint-and-several liability.
Risks and protections for directors
Directors should understand their obligations, potential personal exposure, and the circumstances that trigger enforcement.
Negotiation points include liability caps, sunset clauses, limitations on enforcement and indemnities for pre-existing liabilities.
When personal security is most common
Startups, owner-managed SMEs, property refurbishments, and cases with low company assets often see personal guarantees requested.
Even in asset-backed deals, directors may be asked to sign guarantees where lenders seek additional protection.
For businesses investing in energy efficiency or green upgrades, different lenders may have tailored security options — see our guidance on sustainability loans for more on funding structures and likely security expectations: Sustainability Loans.
How to approach security negotiations and next steps
Prepare before you apply
Know your asset register, freehold/lease status and value evidence such as valuations or recent valuations.
Prepare financial forecasts and explain how the loan will improve cashflow or profitability to reduce perceived risk.
Negotiate key terms
Seek to limit fixed charges to named assets where possible, cap personal guarantees, and request sunset or release clauses.
Negotiate enforcement rights and fees so you understand the practical consequences of default.
Use advisers and comparators
Talk to a broker, accountant or solicitor experienced in commercial lending before signing security documents.
We connect businesses to lenders and brokers who specialise by sector and asset type so you see realistic security expectations quickly.
Next steps with Best Business Loans
If you want a quick read on likely security for your situation, complete our Quick Quote form to get a Decision in Principle or eligibility check.
Submitting a Quick Quote is free, non-binding and helps our AI match your enquiry to lenders or brokers who commonly accept your asset profile.
Summary — Key takeaways
Lenders typically seek asset-backed security, debentures (fixed or floating charges) and director guarantees to protect lending.
The specific mix depends on asset quality, company structure and the lender’s risk appetite, so preparation and negotiation matter.
Best Business Loans helps UK businesses understand likely security requirements and connect with lenders or brokers; start with a Quick Quote for a fast eligibility check.
Important notice: Best Business Loans is an independent introducer and does not provide loans or regulated advice. The information on this page is general in nature and is not a substitute for professional legal, tax or financial advice. Always check with authorised advisers where applicable.
Ready to check your options? Submit a Quick Quote now to see typical security expectations for your business and get matched to suitable lenders or brokers.