Glossary
Cross-collateralisation
Where one security secures more than one facility, so a problem in one part of your position reaches into the others.
In plain English
Cross-collateralisation means a lender holds security over several assets for several facilities, rather than matching one security to one loan. Buy a second business or a second franchise site and you may be asked to secure the new facility against the first business, the new one, and the family home together.
It is normal, and it is often what makes a deal possible at all, because a fit-out or a franchise fee is weak security on its own. The cost is flexibility. Selling one asset, refinancing one facility or releasing one security becomes a negotiation involving all of them, and a problem confined to one part of your position is no longer confined to it.
Why a lender cares
From the credit side it is simply the strongest available position, which is why it is the default ask. What a lender rarely volunteers is the release mechanism: what has to be true for a security to come out. That is negotiable, and it is far easier to negotiate before the facility is documented than after. We set out what secures what in the submission so the question is answered rather than assumed.
Worked example
A franchisee funding a second store is asked to secure it against store one and the family home. Three years later store one is sold. Because the home and the new store are cross-secured to the same facility, the sale proceeds cannot simply be taken: the lender's consent and a restructure come first.
Where this term takes you
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