We understand that lending your money to another is a scary proposition. Even if a repayment plan has been put in place and the company is in good health, you do not know what difficulties they may face in the future. What happens if they can no longer meet repayments – what will happen to your investment? We try to minimise the uncertainty as much as possible; that is why we back up our investment opportunities with real security.
What is security?
In short, security is a pledge of asset, agreed on by the borrower, that can be called upon to repay their outstanding debts if they cannot do so. Security is a secondary repayment vehicle, in place to protect our lenders. Should a business fall into a default position, ThinCats are able to call on the secured assets in order to recover our lenders money. This does not mean that your investment is guaranteed, but it does substantially improve the chances that funds can be recovered.
A security package may be made up of one or several of the below:
Types of security that we take
A debenture creates a fixed and floating charge over the present and future assets of the secured company, and can be registered against the borrower, or a related company. Assets which fall under a debenture include stock, equipment, and book debts. As the assets of a company are always changing, such as stock moving in and out of the door, it can be difficult to value a debenture at any one time. Multiple debentures can be registered against a company, in which case there will be a legal rank of priority.
Legal mortgages can be registered against commercial properties, residential properties, development sites, or plots of land. The type of legal mortgage taken will depend on the purpose of the loan. A valuation of the property/site/land may be completed if applicable prior to drawdown, however there is no guarantee that the property/site/land will still be worth the same amount in the future.
An inter-company guarantee (sometimes called a cross company guarantee) is an agreement between two or more related companies to provide reciprocal guarantees for each other’s debts and obligations. If the one company cannot repay their loan, the other will be called upon to settle the debt.
A chattel mortgage is a charge taken over specific items of equipment or other physical assets that are of value. This means that the asset is not allowed to be sold without the consent of ThinCats, as could potentially happen with a debenture. Full maintenance and repair of the asset is also required under the terms of the chattel mortgage, thus ensuring the asset retains value.
A personal guarantee is a legal obligation entered into by one or more individuals, guaranteeing payment of the loan in the event of a default. A personal guarantee is not tied to a specific asset, but to the personal assets of the individual/individuals who have entered the agreement. In the event of a default, the guarantor would be personally responsible for repaying the borrowers debt.
These are the most common types of security that we see, however there are several others which we may take depending on the circumstances. You can find details on the exact forms of security in each loan’s information pack.
Protecting through process
A loan will not be listed on our platform before our credit team have performed their due diligence, and made sure the loan meets our stringent criteria. We allocate considerable resources to determining a company’s ability to service its debts, and the team will turn down any loans that they believe are too high risk. The credit team is also responsible for the assignment of our credit and security gradings, which help support your investment decision.
Our in-house monitoring team performs quarterly monitoring on borrowers to make sure that they are performing to plan. As part of the monitoring, borrowers are required to submit the following information as a minimum:
- Management accounts (including balance sheet, P&L and comparison with budget)
- Up-to-date aged debtors and aged creditors listings
- Confirmation that VAT and PAYE are up to date (with supporting documentation)
- Certificate of compliance with financial covenants and supporting computations
- General trading update
The financial information is reviewed and any issues or adverse trends will be discussed with the borrower. Financial covenants will be tested by ThinCats.
All loans are tracked via an external risk analysis system, which provides daily credit and business information, and further drives the monitoring process.
Our recoveries team strive to get the best possible result for our lenders, and closely examine the precise details of each case before making any decisions. Once the full intricacies are known, then the best route to maximise recoveries for lenders can be mapped out – taking the time to learn exactly how the business works, and analyse processes that may help save the business and protect the assets. Although the recoveries process may sometimes seem slow, it is only because we are trying to maximise the recovery of debt; our aim is always a full and complete recovery.