If your company is looking to get a loan from a bank, you may have come across the term \u201csecurity\u201d. Security is a legal interest that provides lenders with an efficient means to recover the money they lent. If you breach the terms of a loan agreement, the lender could use their broad powers to recover their money. This article will explain the legal concept of security in a secured loan agreement. <\/p>\n\n\n\n
At its most basic level, a loan is a form of contract. A contract is a legally binding agreement<\/a> between two or more parties, where each party promises to enter into an obligation to obtain a benefit from the other party. A legal obligation means that if one party does not uphold their end of the agreement, you can go to court and ask them to enforce such an obligation. <\/p>\n\n\n\n In a loan agreement, where the borrower has breached a term of the loan, the lender usually seeks a \u201cdebt action\u201d, which is an order by a court telling the borrower to repay the amount. However, if the borrower has run out of money, this can undermine the lender\u2019s ability to retrieve the money they lent. <\/p>\n\n\n\n For example, say a bank lends your company \u00a3100,000. In exchange, your company must repay the loan in three years plus interest. However, your company has run out of money by the time your first repayment is due. Even if a court orders your company to repay the bank for breaching the loan agreement, your company will not have enough assets to satisfy the debt. Hence, the bank is at a loss.<\/p>\n<\/div>\n\n\n\n Lenders can minimise the risk of this occurring by obtaining a security interest. <\/p>\n\n\n\n Banks tend to loan money to companies only if they agree that the bank has the right to claim the company\u2019s assets and sell them to recover the loan amount. That is to say, if the borrower cannot repay the loan amount and therefore breaches the loan terms, the bank still has recourse to recover the amount. <\/p>\n\n\n\n Generally, if a bank has a security interest in your company’s assets, your company cannot sell or transfer its property.<\/p>\n<\/div>\n\n\n\n If the borrower defaults on the loan, the lender can \u201cenforce\u201d against their security. This usually means they will sell the property and use the proceeds of the sale to pay themselves back. Additionally, having security in an asset enables lenders to avoid filing court claims to recover its money. This saves time and expense and incentivises the bank to make secured loans. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhat is Security? <\/h2>\n\n\n\n