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Cash is commonly offered as security for a loan.

In commercial lending transactions cash may be offered as security:

1. •

   as part of a package of security over the whole of a company's assets

2. •

   in transactions where the borrower is required to reserve certain amounts of cash for specific purposes (eg in a mandatory prepayment account in acquisition finance, a rent account in real estate finance or a blocked collection account in receivables finance transactions)

3. •

   in transactions involving a special purpose company where the lender wants to control the flow of cash through the business (eg in project finance)

4. •

   in derivatives transactions, cash posted to central counterparties as financial collateral to cover exposures to their members, and/or

5. •

   as cash cover for a bank guarantee or collateral for a letter of credit

This Practice Note explains the key issues that arise when taking security over cash deposits in a bank account. The bank account could be with the lender or it could be with a third party bank.

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