How can a loan be secured?

How can a loan be secured?

• A. By fixed charge
• B. By personal guarantee
• C. By fixed or floating charge
• D. Unsecured

Answer: (C)

Loans are typically secured by creating a security interest over the borrower's assets. A fixed charge attaches to a specific asset or assets, giving the lender priority to those assets if the borrower defaults. A floating charge covers a changing pool of assets (like stock or receivables) and only crystallizes into a fixed charge on a trigger event, such as insolvency or certain defaults. Together, these describe the main asset-based ways a loan can be secured, which is why this option is the best. While a personal guarantee can also support a loan, it isn’t a charge over assets, and unsecured means there is no security at all.

Loans are typically secured by creating a security interest over the borrower's assets. A fixed charge attaches to a specific asset or assets, giving the lender priority to those assets if the borrower defaults. A floating charge covers a changing pool of assets (like stock or receivables) and only crystallizes into a fixed charge on a trigger event, such as insolvency or certain defaults. Together, these describe the main asset-based ways a loan can be secured, which is why this option is the best. While a personal guarantee can also support a loan, it isn’t a charge over assets, and unsecured means there is no security at all.