What is a negative pledge?

A lender that does not take security still wants to know it will not be pushed down the queue later. A negative pledge does that with a promise rather than a registration. You agree not to grant a fixed charge, a floating charge or any other security interest over your assets while the facility is running, unless the lender agrees in writing.

Because it is only a promise, it gives the lender no rights over your assets. What it gives is a trigger. If you grant security to someone else, you are in default and the lender can demand repayment or reset the terms, even though its own money has been repaid on schedule.

A negative pledge stops you creating new security. It does not stop you borrowing on an unsecured basis, and it does not undo security that already existed when you signed. Most clauses set out permitted security: charges already in place, liens that arise by operation of law, retention of title on stock, and purchase money finance over equipment bought later.

That last carve out matters. Without it, a negative pledge in a working capital facility could block you from financing a new truck, because the financier would need a security interest over it. Read the permitted security list before you assume you can add equipment finance down the track.

Negative pledges are common on unsecured business lending, overdrafts and larger corporate facilities. They also appear in asset finance deals where the financier holds security over specific goods and wants nothing else creeping in around them.

For brokers the clause is a practical constraint. Before placing new secured finance, check the customer's existing facilities for a negative pledge, because a registration on the PPSR is easy for the incumbent lender to spot. Where the clause bites, the fix is usually a written consent, which most lenders will give for ordinary equipment finance when the business is trading well. Ask early, because consent takes time.