Security and collateral in growth lending
Understand security and collateral in growth debt and venture debt, including all-assets packages, IP, cash, receivables, guarantees and lender priority.
In brief
- Security gives the lender rights over specified assets; collateral is the property subject to those rights.
- Growth companies can grant broad security over cash, receivables, IP, subsidiary shares and other assets even when tangible collateral is limited.
- Priority, existing creditor rights, registrations and intercreditor terms determine how useful security is in practice.
- Security does not replace repayment analysis, and unrestricted cash or IP may realise less value in a downside than the company expects.
In this guide
- Secured and unsecured debt
- What an all-assets package may cover
- Intellectual property
- Bank accounts and cash control
- Receivables and asset-based lending
- Priority and ranking
- Guarantees
- Perfection and registration
- Negative pledges and permitted security
- What happens on default
- How security affects normal operations
- Borrower review checklist
- The bottom line
- Where to go next
Security gives a lender legal rights over specified assets if the borrower does not meet its obligations. Collateral is the property subject to those rights. Growth companies can grant security even when they have few physical assets.
Security reduces some recovery risk but does not replace a credible repayment case. Software, intellectual property and a declining cash balance may be valuable to the company yet difficult to realise at the expected value during distress.
Secured and unsecured debt
A secured loan is supported by rights over assets. An unsecured lender relies on contractual payment rights without specific collateral, although it may still benefit from guarantees and restrictive covenants.
The legal forms, creation, registration and enforcement of security differ by jurisdiction. This guide explains the commercial framework; local counsel should confirm the documents and effect.
What an all-assets package may cover
| Asset | Why a lender may include it | Key borrower issue |
|---|---|---|
| Bank accounts and cash | Liquid value and payment control. | Cash may be needed to fund operations and may decline. |
| Receivables | Customer payments can support recovery. | Eligibility, concentration and collection controls matter. |
| Intellectual property | May be central to the operating business. | Standalone sale value can be uncertain. |
| Shares in subsidiaries | Can give access to a subsidiary or its assets. | Local law, minority interests and regulatory consent may apply. |
| Equipment and inventory | Tangible assets with possible resale value. | Depreciation, location and existing finance affect value. |
| Contracts and insurance proceeds | Can preserve value connected to secured assets. | Transfer restrictions and third-party consents may apply. |
All-assets security does not mean every asset is automatically captured or easily enforceable. Exclusions, legal limitations, asset location, ownership and perfection steps matter.
Intellectual property
Intellectual property, or IP, includes rights such as patents, trade marks, designs, copyright and some confidential know-how. It can be strategically essential even when its forced-sale value is hard to predict.
A lender may take security over registered rights and related proceeds, require filings or restrict transfers and licences. Borrowers should protect ordinary licensing, product development and group reorganisations through clear permitted actions.
Security over IP is not the same as transferring day-to-day ownership to the lender. Enforcement consequences and control rights depend on the documents and applicable law.
Bank accounts and cash control
Security over bank accounts may be accompanied by control agreements, account-location requirements or rights that become exercisable after default.
Restricted or pledged cash held specifically for repayment offers different protection from unrestricted operating cash. A cash-burning company normally expects operating cash to decline, so a lien alone does not make that cash a sustainable repayment source.
Confirm whether the company must bank with the lender, which accounts are covered, how overseas accounts are treated and when control can change.
Receivables and asset-based lending
Receivables security can support a general term loan or a borrowing-base facility. A borrowing base calculates availability from eligible assets using agreed advance rates.
That is different from merely taking broad security. Asset-based lending usually involves detailed eligibility, reporting, valuation and control over collateral.
Priority and ranking
Priority determines which creditor is paid first from particular collateral. A first-ranking lender generally has priority over later security in the same asset, subject to law and agreed arrangements.
Existing equipment finance, invoice facilities, leases, landlords, tax claims or retention-of-title suppliers may have competing rights. Build a complete security and debt register before granting new security.
An intercreditor agreement governs ranking, payments, enforcement and decision-making between creditors. Subordination moves one claim behind another by contract or structure.
Guarantees
A guarantee is a promise by another company or person to pay specified obligations if the borrower does not. Group guarantees can give the lender claims against operating subsidiaries that hold value.
A guarantee is not the same as security over assets, although both can be used together. Corporate benefit, capacity and local-law restrictions require advice.
Perfection and registration
Perfection is the legal process that makes a security interest effective against relevant third parties or establishes its priority. It may involve signing, registration, notice, possession or control.
Missing a filing or deadline can weaken the lender’s position and may itself breach the loan. Closing checklists should assign every post-closing step and retain evidence.
Negative pledges and permitted security
A negative pledge restricts the borrower from granting other security. Permitted-security exceptions preserve ordinary operations, existing arrangements and agreed future finance.
Check baskets for equipment leases, receivables finance, bank set-off and acquisitions. Too little capacity can prevent sensible funding even when the first lender is not economically harmed.
What happens on default
After a continuing event of default and required decisions or notices, a lender may gain rights to accelerate, control or realise collateral. Enforcement means using those rights to recover the debt.
The route and outcome depend on jurisdiction, asset type, creditor ranking and insolvency law. Enforcement is not automatic on every breach, but security exists to make downside rights real.
How security affects normal operations
Map consent requirements for new debt, asset sales, licences, acquisitions, corporate reorganisations, bank accounts and insurance changes. Put them into transaction and board checklists.
Security releases are required when assets are sold, entities leave the group or the debt is repaid. Confirm timing, conditions, cost and who must sign.
Borrower review checklist
- Which entities are borrowers and guarantors?
- Which assets are owned by each entity and jurisdiction?
- What existing security or third-party rights already apply?
- Which registrations, notices and account controls are required?
- What ordinary-course actions are permitted without consent?
- How do multiple creditors rank and make enforcement decisions?
- When and how is security released?
The bottom line
Security in growth lending is a legal recovery framework, not proof that the collateral will repay the loan at its expected value.
Founders and CFOs should understand the covered assets, creditor priority, operating restrictions and release mechanics, then take jurisdiction-specific advice on the actual documents.
Where to go next
- Growth debt term sheets explained shows how to read the whole offer before long-form documents.
- Events of default sets out the contractual triggers that give lenders additional rights.
- Revolver vs term loan compares reusable working-capital capacity with term debt.
- Who provides growth debt? maps the provider types and their different incentives.
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