What Is a Debenture? How Lenders Secure Business Loans With Fixed and Floating Charges

What Is a Debenture in Simple Terms?

A debenture is a legal agreement between a limited company and a lender that gives the lender a secured interest over some or all of the company's assets, in exchange for lending money. It isn't the loan itself, it's the backup plan the lender holds in case the company can't repay.

Here's how it works in practice:

• The business applies for a loan, often from a bank, challenger lender, or asset-based finance provider.
• The lender agrees terms, then asks the company to sign a debenture alongside the loan agreement.
• The debenture gets registered at Companies House, creating a public record of the charge.
• If the loan is repaid in full, the lender confirms the charge is satisfied and it's removed from the public record.

Who can issue a debenture? Only limited companies and limited liability partnerships can grant one, because the charge is registered against the company's own legal identity at Companies House. Sole traders and ordinary partnerships don't have a separate legal entity, so a debenture isn't available to them, lenders typically rely on personal guarantees or other security instead.

Debenture meaning shifts slightly depending on context. In UK business lending, a debenture is almost always a security document tied to a company loan. Keep that distinction in mind as you read lender paperwork, because the word carries a second, unrelated meaning explained next.

Debenture vs Bond: The Other Meaning of "Debenture"

A debenture can also mean a tradable debt security that investors buy, similar to a bond, which is a completely different use of the word from the company-lending debenture discussed in this guide. The two meanings share a name but serve different purposes.

Business-lending debenture (UK focus of this article):

A security document a company signs to secure a loan. Not traded, not an investment product for the public.

Investment debenture (bond-like security):

A certificate of debt issued by a company or government, bought by investors who receive interest and expect repayment at maturity. In some markets, particularly the US, "debenture" specifically means an *unsecured* bond, which is the reverse of the secured meaning used in UK lending.

Can individuals invest in debentures? Yes, in the bond-like sense, corporate debentures and similar instruments are sometimes available to retail or institutional investors through capital markets. That's a separate product from the lender's security document covered in this article, and the risks, pricing, and regulation differ. If you're researching debentures as an investment, you're in different territory than a business owner trying to understand loan security, this guide focuses on the latter.

Fixed Charge vs Floating Charge on a Debenture

A fixed charge gives a lender security over a specific, identifiable asset that the company can't sell or remortgage without the lender's permission. A floating charge gives security over a class of assets that changes day to day, like stock and trade debtors, and the company can keep trading with those assets without asking the lender each time.

What is crystallisation? A floating charge "crystallises", turns into a fixed charge over whatever assets exist at that moment, when a trigger event happens, such as the company entering insolvency, a lender appointing a receiver, or the business ceasing to trade. Once crystallised, the company loses the freedom to deal with those assets without the lender's agreement.

Decision rule: Choose to understand this distinction carefully before signing. If most of your business value sits in stock, debtors, or cash rather than fixed assets, a floating charge will likely cover the bulk of what the lender can claim. If you own property or specialist equipment outright, expect a fixed charge over those specific items too.

Most UK business debentures combine both. Lenders rarely rely on a fixed or floating charge alone.

How Do Debentures Secure Business Loans?

Lenders use a debenture to secure a business loan by combining a fixed charge over named assets with a floating charge over everything else the company owns, giving the lender a claim across the whole business rather than one item. This is the market-standard structure for company lending in the UK.

A typical combined debenture might cover:

• A fixed charge over the company's freehold property, a specific vehicle fleet, or registered intellectual property.
• A floating charge over stock, raw materials, trade debtors, cash in the bank, and any other assets not specifically named.

This combined structure is why a debenture can sit behind loans that aren't marketed as "secured" against one asset, the security spreads across the balance sheet instead. For a full breakdown of how loan structures, repayments, and security fit together, see how business loans work.

Why Do Lenders Ask for a Debenture on an Unsecured Loan?

Lenders ask for a debenture on a loan marketed as "unsecured" because the debenture secures their position across general company assets, rather than against one named item like a property or a car. This is common, and it doesn't make the loan "secretly secured" in the way most borrowers assume.

The difference comes down to structure, not intent:

• A loan secured against a specific asset (like a commercial mortgage) requires a formal valuation and a fixed charge over that one asset.
• An unsecured business loan with a debenture attached gives the lender a general claim via a floating charge, without naming a specific property or machine.

Borrowers sometimes feel misled when a loan described as unsecured still involves a debenture. In practice, the label "unsecured" usually refers to the *absence of a specific named asset* being put up as collateral, not the absence of any security instrument at all. If this distinction matters for your application, read the full explainer on unsecured business loans to see how lenders draw the line.

Debenture Loan Pricing: What Affects the Cost?

There's no single interest rate or fee structure for a debenture-backed loan, pricing depends on the lender, the loan amount, the strength of the assets secured, and the borrower's trading history and credit profile. Because rates, fees, and terms vary so widely by lender and applicant, this guide doesn't quote specific figures; always check the lender's own terms before committing.

Factors that typically influence cost include:

Asset quality:

Loans backed by valuable, easily identifiable fixed assets may carry different pricing than those relying mainly on a floating charge.

Loan term:

Shorter-term facilities and longer-term loans are priced differently, and maturities vary by lender and product.

Trading performance:

Many lenders weigh current cash flow and bank statement activity, particularly when assessing SMEs with imperfect credit history.

Legal and registration costs:

Preparing and registering a debenture typically involves legal fees on top of the loan's interest and arrangement fees.

Because debenture terms and loan pricing both vary by lender, it's worth comparing more than one option before signing. You can compare selected finance partners through a panel-based platform rather than approaching lenders one at a time.

How Do You Find and Remove Charges at Companies House?

You can find a company's registered charges, including debentures, by searching the company's filing history on the Companies House register, which is free and public. Removing a charge, known as "satisfying" it, requires filing a specific form once the debt is repaid.

What Happens If a Company Defaults on a Debenture?

If a company defaults on a loan secured by a debenture, the lender can enforce the charge, which may include appointing an administrator or receiver to recover the debt from the secured assets. What happens next follows a broadly fixed order of priority in UK insolvency.

The general insolvency priority order, from first paid to last, typically runs:

1. Costs of the insolvency process itself.
2. Holders of fixed charges, paid from the proceeds of the specific assets they're secured against.
3. Certain preferential creditors (such as some employee claims).
4. Holders of floating charges, paid from remaining assets.
5. Unsecured creditors, who are paid from whatever is left, often very little or nothing.

This order is why lenders push for a fixed charge wherever possible: it sits higher up the queue than a floating charge. For the business owner, defaulting on a debenture-secured loan can mean losing control of company assets to an appointed insolvency practitioner, not just facing a demand letter. This is a materially different outcome from defaulting on a purely unsecured debt with no registered charge attached.

Decision rule: If your business is already carrying charges and considering new borrowing, understand where a new debenture would sit in that priority order relative to existing lenders before signing anything.

Debenture vs Mortgage vs Equity Financing

A debenture, a commercial mortgage, and equity financing all raise money for a business, but they differ in what's secured, who ends up owning what, and what happens if things go wrong. Choosing between them depends on what the business owns, how much control the owner wants to keep, and how urgently funds are needed.

Debenture vs mortgage, which is better? A mortgage only makes sense if the business owns (or is buying) property it wants to secure a loan against. A debenture-backed loan is more flexible because it can secure a mix of assets, including ones that change over time, which suits businesses without significant property but with stock, equipment, or receivables.

Debenture vs equity financing comes down to control and repayment. A debenture-backed loan keeps ownership entirely with existing shareholders but commits the business to fixed repayments and gives a lender a legal claim over assets. Equity financing avoids repayment pressure but means giving away part of the company permanently. For a side-by-side look at secured structures specifically, see secured business loans.

Loan vs Debenture vs Personal Guarantee

A loan is the money borrowed, a debenture is the company-level security document attached to that loan, and a personal guarantee is a separate promise from a director to repay personally if the company can't. These three things often appear together in the same application but serve different legal purposes.

The loan:

The agreement covering the amount borrowed, the repayment schedule, and the interest or fees.

The debenture:

Secures the lender's position against the *company's* assets (fixed and/or floating charge), registered at Companies House.

The personal guarantee:

A separate undertaking from a director, secured against the director's *personal* assets or income, used when the lender wants extra protection beyond what the company can offer.

A lender can ask for a debenture, a personal guarantee, both, or neither, depending on the loan size, the company's asset base, and the lender's own criteria. Directors sometimes assume signing a debenture removes the need for a personal guarantee, but that's not guaranteed, read the loan offer carefully to see which (or both) apply. For a full breakdown of what a personal guarantee means for a director specifically, see personal guarantees on business loans.

How Long Does a Debenture Last?

A debenture typically lasts for as long as the secured loan remains outstanding, and it's removed from the Companies House register once the debt is repaid and a satisfaction form is filed. It isn't fixed to a set number of years, its lifespan is tied to the underlying loan term, which varies by lender and product.

Points worth knowing:

• A debenture can technically remain registered even after a loan has been informally paid off if nobody files the satisfaction form, this is why checking the Companies House charges tab matters before taking on new finance.
• Some debentures are drafted to cover future borrowing (an "all monies" debenture), meaning the charge can secure not just the original loan but future facilities with the same lender too.
• Calculating the value tied up in a debenture isn't a simple formula for a business loan, unlike the investment-style debenture, there's no fixed coupon or maturity value. The relevant figure is the outstanding loan balance the charge secures at any point in time, not a separately calculated "debenture value."

Before applying for finance that may involve a debenture, it helps to know what paperwork a lender will expect. See what documents you need to apply for a business loan for a practical checklist.

Application-readiness checklist

• Company number and up-to-date Companies House filing history on hand.
• Asset list clarified: which assets might sit under a fixed charge, which under a floating charge.
• Existing charges checked on the Companies House register before applying for new borrowing.
• Legal advice sought on debenture wording, particularly "all monies" clauses, before signing.
• Clarity on whether a personal guarantee is also being requested alongside the debenture.
• Repayment schedule matched against realistic cash flow, not best-case trading forecasts.

Next steps for what is a debenture

A debenture is the paperwork that decides who has first claim on a company's assets if a loan goes wrong. Understanding the difference between a fixed and a floating charge, knowing what gets registered at Companies House, and knowing where a personal guarantee fits separately puts a director in a far stronger position before signing anything.

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