The Most Common Loan Security Agreements
These are the most common loan security agreements:
Chattel mortgage
A mortgage on specific assets other than land and buildings. A lien charge against the title is registered with the County or State.
Floating charge
An agreement which designates that all remaining assets in the business, not already mortgaged as security for other debts, will be taken as the security for the new debt. The title remains with borrower but a debenture is registered with the County or State.
Personal guarantee
This agreement means you agree that if the limited company is unable to repay the loan, you will do so personally. If this is in addition to other securities, you would be wise to try to negotiate a limited guarantee to cover the shortfall in the security for the loan. Recover your personal guarantee as soon as the business has paid off its obligation or can carry the debt on its own security.
Pledge
An agreement similar to the chattel mortgage, but possession is transferred to the lender while title remains with the borrower.
Postponement of a claim
This allows the lender to ask for assurance that the company will not repay the shareholders until the secured lenders have been repaid in full.
Promissory note
A written promise to pay a specified sum of money to the lender either on demand or on a specified date.
Realty mortgage
A loan (mortgage) whose proceeds are applied to the purchase or re-finance of land and buildings. A charge against the title is registered with the County or State.