What is a charge in the context of corporate finance?

In the context of corporate finance, a charge refers to the security given to a creditor to secure a specific debt. This is a crucial concept in secured lending where a borrower offers assets to a lender as collateral. If the borrower defaults on the loan, the lender has the right to seize the charged assets.

This mechanism provides protection for creditors, as it gives them a claim on particular assets, thereby reducing their risk exposure. By placing a charge on assets, the lender can ensure that they have recourse to specific funds or properties should the borrower fail to meet their financial obligations.

The other options do not accurately capture the definition of a charge. A penalty fee relates more to late payments or default in obligations rather than to the security for a debt. A financial guarantee is a promise made by a third party to cover a loan or obligation, which differs from a charge as it does not involve a specific asset assignment. Finally, a contract with shareholders typically pertains to rights and obligations between a company and its shareholders, but it does not equate to a secured interest in property or assets like a charge does.