Types of Securities :
The characteristics of a good security from the viewpoint of the lending bank are marketability; easy ascertainability of value, stability of value,
clean title and transferability / transportability. The most common types of securities accepted by banks are the following.
Personal Security of Guarantor
The personal security of guarantor comprises a guarantee by a third party for payment of loan outstanding, in the event of default by the borrower. No charge is created on the guarantor’s movable or immovable assets.
Fixed and Floating Charges
A fixed charge (also called ‘specific charge’) is a charge on some specific and ascertained assets. The creator of the charge (i.e., the borrower)
cannot deal with the asset without the specific consent of the holder of the charge (i.e., the lender). A floating charge, on the other hand, is an equitable charge on the assets, present as well as future. A floating charge attaches to assets whose condition varies from time to time in the ordinary course of business (e.g., work-in-process). A floating charge crystallises (i.e., becomes a fixed charge) when money becomes repayable and the holder of the charge (i.e., lender) takes necessary steps for the enforcement of the security.
Margin
Margin on Loans is upfront payment by the borrower towards the purpose of the loan sanctioned. Banks provide finance after keeping suitable
margin, depending upon the risk perception of the bank. Margin is deducted from the value of the assets to take care of any downward fluctuations in the market value of the assets. Generally margin in prescribed in every sanction letter in terms of percentage of security value, as per credit policy of bank.