Is Invoice Finance Secured or Unsecured?
Secured, but the security is your invoices, not your property. The provider takes ownership or assignment of the debts it funds, and usually registers a debenture over the company's book debts at Companies House. Many providers also ask for a personal guarantee, which UK Finance says can be unlimited or capped at a set amount. Unlike most bank lending, your home and other fixed assets are not the primary security.
Invoice finance is a form of secured funding. Security comes from the receivables themselves: the provider takes assignment or ownership of the funded invoices, typically supported by a debenture over book debts registered at Companies House, and often a personal guarantee from directors, which can be unlimited or capped. Property is not normally required as security. More detail and scope
This page covers:
what security invoice finance providers take: assignment of debts, debentures, personal guarantees, and priority arrangements with existing lenders.
Not covered here:
how debentures work in detail (see /guides/invoice-finance-debenture-and-personal-guarantee-explained/), personal guarantee terms (see /guides/invoice-finance-debenture-and-personal-guarantee-explained/), reading a deed of priority (see /guides/how-to-read-a-deed-of-priority/)
What Security Providers Actually Take
The core security is the funded invoices themselves: in factoring the provider buys the debts outright, and in discounting it takes an assignment of them. On top of that, most providers register a debenture, a charge over the company's book debts (and often all assets) filed at Companies House, which puts the facility on public record and ranks the provider ahead of unsecured creditors if the company fails.
Where Personal Guarantees Fit
Many providers also ask directors for a personal guarantee (PG). UK Finance says a guarantee can be unlimited, covering everything the business owes the lender plus interest and costs, or limited to a set amount. Some invoice finance lenders ask for something narrower: FlexABL, for example, says it will "normally ask for some form of limited personal guarantee or warranty from the directors". A warranty-only guarantee only comes into play if the business breaks the promises it made about its invoices. The wording decides which kind you are signing. Our guide to debentures and personal guarantees covers what to negotiate, and personal guarantees and invoice finance explains the kinds of guarantee.
If Your Bank Already Holds a Debenture
An existing bank debenture usually covers book debts, so the invoice financier will ask the bank for a waiver or a deed of priority giving it first claim on the receivables before it funds. Banks grant these routinely, but it adds days to setup. See how to read a deed of priority before you sign one, and whether you can run invoice finance alongside an overdraft.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam was managing director of Penny, a UK invoice finance business, from July 2020 to November 2023. His career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library. Career record.
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