LOAN DOCUMENTATION AND BANKING FINANCE.PART 3

There is a debenture when the borrower creates a charge over its asset in favour of lender.This means the lender is given some interest over some asset of the borrower.Obviously,the lender takes over in the event of borrower's default and sell it to get repayment.2 types of debenture fixed and floating charge,the former is a fixed charge on specific fixed asset while the floating charge floats on inventory or non constant assets like shares.Another option is a combination of the two.Moreover,stock hypothecation floats on the use of stock of goods as collateral.Companies that deal with large stock of goods fall into this category and could use the stocks as collateral and maybe seized in case of default.We shall not rule out the letter of lien and set off.A borrower uses the letter to create an interest over the borrower's asset,in favour of the bank.It could be cash in a bank or property.The borrower simply signs the letter stating that it gives the bank a right of lien over the specified property.Borrower