In early chapter, although I have advised borrowers not to charge debenture to bank, a borrower sometime has no choice especially when the borrower is a start-up company or unable to present a strong financial statements.
Most of the time, borrowers accepted the terms without knowing the implication of charging its debenture to banks.
What exactly the implication of charging debenture to banks ?
- After charging debenture to a bank for some bank facility, other bank who wish to grant additional facility to the company may need to obtain consent from the debenture holder before the new facility is released. Whether the debenture holder agreeable to grant consent will depend on the policy of the bank. Debenture holder can either refuse to grant consent or take long time to process the request before consent is given.
- In worst scenario, other banks may even refuse to grant additional facility to the company.
