Hypothecation Agreement Template for Nigeria

A Hypothecation Agreement lets borrowers pledge assets as collateral for loans while keeping possession and use of those assets. In Nigerian banking, these agreements help businesses secure funding by offering their inventory, equipment, or other valuable items as security without disrupting their operations.

Under Nigerian banking regulations, the agreement must clearly identify the pledged assets, loan terms, and both parties' rights. It differs from a mortgage because the borrower maintains physical control of the assets. Banks commonly use hypothecation for trade financing, working capital loans, and business expansion funding across Nigeria's commercial sectors.

Use a Hypothecation Agreement when seeking business financing but need to keep using your assets during the loan period. This arrangement works perfectly for Nigerian manufacturers who want to borrow against their machinery while continuing production, or traders who need working capital secured by their inventory.

The agreement becomes essential when dealing with Nigerian banks for trade finance, equipment loans, or business expansion. It offers more flexibility than traditional collateral arrangements, especially for businesses with valuable assets they can't afford to surrender. Many companies use hypothecation to access larger loan amounts while maintaining their operational capacity.

• Floating Hypothecation: Used for revolving credit facilities where the security interest shifts between different assets as inventory or receivables change
• Fixed Hypothecation: Covers specific, identified assets that remain constant throughout the loan term
• Stock Hypothecation: Common in Nigerian trade finance, securing loans against trading inventory or commodities
• Equipment Hypothecation: Primarily used for manufacturing or industrial assets while maintaining production
• Multiple Asset Hypothecation: Combines various asset types under one agreement, popular among larger Nigerian businesses seeking comprehensive financing

• Commercial Banks: Draft and enforce Hypothecation Agreements as lenders, setting terms and monitoring compliance
• Business Owners: Sign as borrowers, pledging company assets while maintaining operational control
• Corporate Lawyers: Review and customize agreements to protect client interests and ensure regulatory compliance
• Financial Officers: Manage the pledged assets and ensure compliance with agreement terms
• Bank Compliance Teams: Monitor adherence to Central Bank of Nigeria regulations and internal lending policies

• Asset Details: Compile complete descriptions of all assets to be hypothecated, including values and locations
• Loan Terms: Document the loan amount, interest rates, repayment schedule, and duration
• Party Information: Gather full legal names, addresses, and registration details of all involved parties
• Asset Valuation: Obtain current market valuations from approved Nigerian valuers
• Documentation: Collect asset ownership proof, company registration documents, and board resolutions
• Draft Review: Use our platform to generate a compliant agreement, ensuring all Central Bank requirements are met

• Parties Section: Full legal names and details of the lender and borrower, with signing authority verification
• Asset Description: Detailed identification of hypothecated assets, including location and valuation
• Loan Terms: Specific amount, interest rates, repayment schedule, and default conditions
• Rights and Obligations: Clear outline of asset usage rights, maintenance responsibilities, and insurance requirements
• Enforcement Clause: Lender's rights upon default under Nigerian banking regulations
• Governing Law: Express statement of Nigerian law application and jurisdiction
• Execution Block: Proper signature spaces with witness requirements per Nigerian law

A Hypothecation Agreement differs significantly from an Asset Purchase Agreement in Nigerian business law. While both deal with valuable assets, their core purposes and effects are quite distinct.

• Ownership Transfer: Hypothecation keeps ownership with the borrower, while an Asset Purchase Agreement permanently transfers ownership to the buyer
• Asset Control: Under hypothecation, the borrower maintains possession and use of assets; an Asset Purchase Agreement gives the buyer full control
• Purpose: Hypothecation secures a loan while keeping business operations running; Asset Purchase Agreements facilitate complete business asset sales
• Duration: Hypothecation lasts until loan repayment; Asset Purchase Agreements represent permanent, one-time transactions
• Legal Rights: Hypothecation creates a security interest; Asset Purchase Agreements transfer full legal title and rights