Securing of a Loan: Pledge Agreement

Key points and English Template

Use a Pledge Agreement to secure a loan if ...

… you have granted a loan and the borrower hands over certain assets to you as security for repayment

… you have taken out a loan and must provide the lender with certain assets to secure its repayment

Key Points included in a Pledge Agreement

What is a Pledge Agreement ?

Under this pledge agreement, a borrower transfers the possession of certain assets to a lender to secure a loan

The pledged assets are used as a collateral and hence remain in the lender’s possession until full repayment.

If the borrower is in default for payments under the loan (for instance, it has failed to pay the interest when due), the lender may enforce the pledge by realizing the assets, either through a private sale or by way of an official auction. The pledge allows the lender to recover (at least part of) its losses and serves to mitigate the credit risk of the borrower. 

If the assets pledged are securities, special form requirements apply for the transfer of possession and both lender and borrower must agree on who and under what conditions should be entitled to exercise the rights attached (for instance, the voting rights attached to shares).

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