Secured loan agreement: on financial instruments

About this secured loan agreement

This agreement allows you to use shares or other financial instruments as collateral for a secured loan. Often, personal assets of significant value are held jointly with husbands, wives or partners. For a borrower unwilling to risk the possessions of his spouse, or for a lender who wants distinct ownership of the asset or the ability to maintain the value of collateral in case of default, pledging a loan against company shareholdings can be attractive.

Financial instruments like shares can be difficult to value initially (unless they are publicly listed and traded often enough to be liquid). However, once a method of valuation has been established (e.g. an adjusted net asset value per share), the advantage of using financial instruments as security is that the total value of the security can be easily maintained by the borrower pledging more shares or options. Unlike other high value assets like property, financial instruments are usually divisible, smaller individual units of value.

There is no standard loan agreement template that fits all loans with no editing – every loan is different. But this document is very flexible. The parties involved can be individuals or businesses (for example, you could use it to loan money from one company to another, backed by the borrowing company’s shareholding in a subsidiary, affiliate or investment, or from one individual to another, guaranteed by the borrower’s public company share portfolio) and you’ll find a large menu of provisions to suit your needs when the terms are complex and more is at stake, without needing to worry about the legal wording.

The law in this secured loan agreement

There is little statutory regulation relating to an agreement of this nature, so the parties can make, more or less, the deal they choose. We have included a very large choice of variables particularly around repayment of the loan so that you can draw your agreement to suit exactly what you want without reducing the legal effect of the rest of it.

Drawn outside the Consumer Credit Act 1974, this agreement is not suitable for companies in the business of lending or providing credit to consumers.

When to use this secured loan agreement

• The lender and the borrower may be a business or an individual
• The collateral can be any type of financial instrument: shares, stock options etc
• Suitable for a business to business loan
• Suitable for personal loans to family and friends
• Either or both parties may be in the UK or abroad
• Flexible for loans of any size and repayment terms of any complexity

Agreement features and contents

• Standard terms to protect both parties, especially the lender
• Comprehensive provisions menu from which you can choose
• Provides for alternative draw down arrangements and provision of information to the lender

The contents of the agreement include:

• Structure of the loan;
• Alternative draw down arrangements;
• Provisions of periodic information to lender to allow valuation;
• Repayment and interest payment arrangements;
• Provision for default situations;
• Extensive menu  of borrower's warranties;
• Other legal provision to protect your interests.