In today’s competitive business environment, access to finance is frequently the key factor between growth and stagnation. Whether in mergers and acquisitions, private equity transactions, venture capital investments, or start-up funding, security plays a critical role in shaping deal structures, mitigating risks, and ensuring long-term sustainability. Understanding the various forms of security and how to use them strategically is essential for businesses seeking capital, investors managing risk, and dealmakers brokering complex transactions.

What is meant by having security in a corporate finance transaction?
Simply stated, in corporate finance, ‘security’ refers to an arrangement where a borrower provides some form of assurance to a lender, investor, or counterparty that an obligation will be fulfilled (generally to repay money borrowed subject to certain terms and conditions).

What types of security can be used in corporate finance?
South African corporate finance recognises a broad range of security structures. Common categories include the following:

• Personal security: these are generally obligations undertaken by a third party (such as providing surety or a guarantee).
• Security over movable property: such as pledges of shares and the cession of debts.
• Security over immovable property: such as mortgages registered over fixed property.
• Marketable securities: such as the use of listed shares, bonds, or other tradable instruments as collateral.
• Innovative mechanisms: increasingly, dealmakers also use escrow structures, earn-outs secured against assets, or hybrid financial instruments.

Each type of security has its own unique legal, financial, and commercial implications, making expert structuring essential to ensure enforceability and to align with the broader transaction strategy.

Why is security important in corporate finance?
Security provides assurance for lenders, investors, or counterparties that the borrower will honour their obligations. Providing security therefore mitigates risk (reducing the exposure faced by lenders/financiers, making them more willing to advance funds or offer other favourable terms), and serves to ensure that lenders/financiers have a right of recourse if the borrower does not meet their obligations (providing them with a mechanism to recover the whole or part of the value of the financing). Furthermore, creative security packages allow deals to be structured in ways that align with commercial objectives.

Businesses that are able and willing to offer security can unlock favourable financing terms from banks and institutional lenders. Offering security may also advance private equity participation through structured protection for investors, as well as deal certainty in merger and acquisition transactions, where buyers and sellers rely on security to balance risk in complex funding models.

Security agreements are therefore a strategic tool which businesses can use to enable capital formation, drive projects and growth, as well as advance their market position and competitive edge.

A well-structured security package not only protects investors but also enhances the investee company’s credibility and negotiating power. Combining legal rigour with commercial foresight permits businesses and investors to unlock capital flows, protect stakeholder interests and achieve long-term growth and profitability.

Understanding security options also allows companies to negotiate funding on an informed basis, ensuring that they do not over-secure or under-protect.

Practical considerations
While security arrangements can provide noteworthy benefits, these must be approached strategically. Reasons for this include the following:

• Due diligence: Identify what assets are available and appropriate for security.
• Perfection of security: Ensure that all legal steps (such as Deeds Office registrations) are properly completed.
• Priority & ranking: Be mindful of how different securities rank, especially where multiple creditors are involved.
• Regulatory compliance: Certain transactions (particularly cross-border deals) may trigger exchange control, competition law, or sector-specific regulatory requirements.

In an environment where access to capital fuels growth, understanding and leveraging security is a critical skill for corporates, investors, and entrepreneurs. Security in corporate finance is not just about protecting creditors; it is about unlocking opportunity. For South African businesses navigating mergers and acquisitions, raising private equity, or entering innovative funding structures, the correct use of security can transform risk and barriers into opportunity and growth.