Security Documents in Kenya: What Businesses Should Know

Why “security” matters

In most business lending, the facility letter is only half the story. The security package determines what the lender can do if things go wrong — and it also affects pricing, timelines, and risk for directors and shareholders.

1) Common security documents

• Charges / Mortgages: security over land or buildings.
• Debentures (fixed & floating charges): security over company assets (movables, receivables, stock, goodwill).
• Guarantees & indemnities: personal or corporate support for repayment.
• Share charges: security over shares in a company.
• Assignments: security over contracts, receivables or proceeds (e.g., rental income).

2) “Perfection” – the step people forget

Signing security documents is not enough. Many securities must be perfected (for example, stamped and registered). If perfection is missed, the lender’s position can be weakened — and borrowers can face delays in drawdown or disbursement.

3) Registration and priority

Where registration is required, timing is critical. Priority disputes can arise when multiple lenders (or creditors) claim rights over the same asset. Proper registration, clear searches, and carefully drafted ranking agreements help avoid disputes later.

4) Director exposure: understand guarantees

Directors often sign guarantees without fully understanding the risk. Key points to review include:

• Whether the guarantee is capped (or unlimited).
• Events that trigger demand and enforcement.
• Indemnities (often broader than guarantees).
• Whether security is joint and several (multiple guarantors).

5) Enforcement: what happens in default

Default does not always mean immediate asset sale. Many facilities provide cure periods, restructuring options, and negotiated settlements. However, once enforcement begins, timelines can be tight — get advice early.

6) A simple borrower checklist

• Confirm what documents are required (and by when).
• Ask what must be stamped/registered and who pays the costs.
• Ensure board and shareholder approvals (where needed) are properly documented.
• Confirm discharge terms (how security is released when the loan is repaid).