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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3652
Experience:  Solicitors 2 years plus PQE
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For a convertible loan agreement, do you have a template

Customer Question

Hello, for a convertible loan agreement, do you have a template term for assigning collateral to the lender (myself in this case) in the event of default by the borrower?
Submitted: 11 months ago.
Category: Law
Expert:  Alex J. replied 11 months ago.

Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. What form does the security take? Is it a charge over land?

Customer: replied 11 months ago.
Hello Alex, I am investing in a shoe retail business in the UK by way of a convertible loan. The idea is that the investment will convert into equity in the business. But if it doesn't within a certain time frame (2 years) then the business should return the loan amount plus interest. I'd like to strengthen this repayment part by way of having collateral in the business for example shoe inventory, cash in the bank or any other assets that could be converted. Essentially I'd like to get a template contract or part of a contract that has this sort of clause. I hope this clarifies the situation.
Expert:  Alex J. replied 11 months ago.

Hi, Thank you. Is there existing security? An assignment means you transfer existing security from one party to another. What you have described would be known as "debenture" (assuming this is a limited company"). This means you have a fixed and floating charge over the assets of the company. The fixed charge would be on this like property good will etc, the floating charge would be over trading stock and book debts for example. Have you advanced the monies yet?

Customer: replied 11 months ago.
Hi, 'Is there existing security?' - no. I have not advanced the funds. Will only do so after signing the loan agreement.
Expert:  Alex J. replied 11 months ago.

Thank you. So this wont be an assignment of security it will just be fresh security. On that basis the security must be signed when the loan is made. http://simply-docs.co.uk/Security_Documents/Debenture_Agreement - this debenture on Simply Docs is a good starting point. It must be registered at Companies House with 21 days of dating it. Kind regards AJ

Customer: replied 11 months ago.
Thank you. Would it be easier to request a personal guarantee from the borrower than having a debenture?
Expert:  Alex J. replied 11 months ago.

Hi, Thank you. You could ask for both. A personal guarantee is another form of security but it is only as good as the solvency of the person giving it - so for example does the guarantor own a home, have cash in the bank etc? Would they be able to pay it if called upon. I am happy to assist further but would be most grateful if you would rate my answer in the mean time. Kind regards AJ

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Customer: replied 11 months ago.
Thank you
Expert:  Alex J. replied 11 months ago.

No problem. If I can assist any further please do not hesitate to contact me. Kind regards AJ