Use business assets you already own to raise finance

Your business may own vehicles, machinery, equipment or other valuable assets that can be used as security for a business loan.

Rather than borrowing to buy an asset, a secured business loan can allow you to use assets you already own to raise money for working capital, stock or materials, tax payments and other business expenses.

The amount you can borrow will depend on the assets you have available, their value and resale ability, as well as the financial position of your business.

We work with lenders that can take security over a wide range of business assets. We can look at what your business owns and determine whether those assets could help you access the finance you need.

What is a secured business loan?

A secured business loan is finance where the lender takes security over one or more identifiable assets.

If the loan isn't repaid, the lender may ultimately have the right to take possession of and sell the secured assets to recover the money owed.

Having security doesn't mean the lender will automatically approve a loan. Your ability to repay the borrowing still matters. However, providing suitable security can strengthen an application because it reduces some of the lender's risk.

This can sometimes create lending options that may not be available on an unsecured basis.

What can I use as security for a business loan?

The important question isn't simply “What did this asset cost?”

A lender needs to consider what the asset is likely to be worth if it ever has to be sold.

Suitable assets can include:

• Vehicles

• Trucks and commercial vehicles

• Machinery

• Plant and equipment

• Commercial equipment

• Collections of business chattels

The asset needs to retain enough value to provide meaningful security and there needs to be a reasonable resale market for it.

Age, condition and the type of asset can therefore make a significant difference.

Sometimes the security isn't one big asset

Businesses don't always own one high-value vehicle or machine that can be offered as security.

A lender may sometimes consider the collective value of a group of business assets.

For example, a hospitality or accommodation business might have significant value tied up in its chattels — commercial kitchen equipment, refrigeration, furniture, beds, appliances and other equipment.

Individually, those items may not look like obvious security for a business loan. Collectively, however, they can represent a substantial pool of assets.

We work with lenders that can consider these less conventional forms of business security.

What assets aren't suitable for a secured business loan?

Not every asset that appears on your balance sheet will be useful to a lender.

Assets are less likely to be suitable if they:

• Have little remaining resale value

• Are old or in poor condition

• Are highly specialised and would be difficult to sell

• Have a very limited second-hand market

• Are leased or aren't actually owned by the business

• Consist of numerous low-value items with little meaningful resale value

Ordinary computers, office equipment and low-value tools, for example, may have been expensive to purchase but can lose their resale value quickly.

Stock and inventory are also different from readily identifiable assets such as vehicles and machinery and aren't generally the type of security we're talking about on this page.

If you're unsure whether an asset is suitable, talk to us. It isn't always obvious which business assets a lender may be prepared to consider.

How much can I borrow against my business assets?

The amount available depends on the lender and the assets being offered as security.

As a broad guide, lending may be available up to around 50% of the value of suitable assets, but this isn't a fixed lending ratio.

A lender will consider factors such as:

• What the asset is

• Its age and condition

• Its current value

• How quickly it is depreciating

• How readily it could be sold

• The likely resale value if it needed to be realised

The lender will also assess your business and its ability to repay the loan. Asset security supports the application; it doesn't replace normal lending assessment.

How long can I get a secured business loan for?

These loans are generally intended to be short-term business finance, with terms potentially available up to around 12 months depending on the lender and circumstances.

There's a practical reason for shorter loan terms.

Vehicles, machinery and equipment generally depreciate. They can also break down, be damaged, become obsolete or be stolen. The longer the loan runs, the greater the possibility that the value or availability of the lender's security will change.

The loan therefore needs to be structured so that the outstanding debt remains appropriate in relation to the security supporting it.

Can I use an asset that already has finance owing on it?

Potentially, but the existing finance will need to be considered.

If another lender already has security over the asset, a new secured lender will generally want that finance paid out as part of the new lending, rather than simply taking security behind the existing lender.

For example, if your business owns a vehicle with significant value but still has finance owing on it, the new loan may be structured to repay the existing vehicle finance and provide additional funds to your business.

What is possible will depend on the value of the asset, the amount already owing and the new lender's criteria.

How does the lender take security over my assets?

The lender needs to clearly identify the assets being provided as security.

For a vehicle, this may include information such as its registration and vehicle identification number (VIN). Machinery and equipment may be identified through serial numbers, make, model and other identifying information.

Where a collection of business assets is being used, the lender may require an asset schedule describing the chattels included in its security.

The security documentation will set out what assets the lender has security over and the lender's rights in relation to those assets.

What is a Specific Security Agreement?

A Specific Security Agreement (SSA) gives the lender security over particular identified assets.

For example, an SSA might cover a specific vehicle, machine or group of business assets being used to support the loan.

This allows the security documentation to identify exactly which assets are subject to the lender's security interest.

What is a General Security Agreement?

A General Security Agreement (GSA) gives a lender security over a broader range of assets belonging to the business rather than only one specifically identified asset.

Depending on the lender and the loan, a lender taking specific security over an asset may also require a GSA over the business.

The security required will depend on the lender, the assets available and the overall lending proposal.

What is the PPSR and why is the security registered?

When a lender takes security over business assets, its security interest is registered on the Personal Property Securities Register (PPSR).

The PPSR provides a public record of security interests in personal property. Registering the lender's interest lets other parties know that security has already been taken over the relevant assets.

This is particularly important when assets are being used to secure borrowing, because another lender considering those assets can search the PPSR and identify existing registered security interests.

Once the secured lending has been fully repaid, the lender's registered security interest can be discharged.

Do the assets need to be insured?

Yes. Assets being relied upon as security need to be appropriately insured.

The lender will generally require evidence of insurance and its interest will need to be noted on the insurance policy.

That protects the lender's position if, for example, a secured vehicle is stolen or a piece of machinery is seriously damaged.

You'll need to maintain the required insurance while the asset remains security for the loan.

What can I use a secured business loan for?

The asset provides the security for the loan; it doesn't necessarily determine what you use the money for.

Secured business lending can potentially be used for ordinary business purposes including:

• Working capital

• Paying suppliers or other bills

• Catching up on GST, PAYE or other tax obligations

• Purchasing stock

• Buying materials for upcoming work

• Managing a temporary cashflow shortage

• Other legitimate business expenses

This is what distinguishes this type of lending from traditional asset finance.

With asset finance, you're borrowing money to purchase the vehicle, machinery or equipment.

Here, you already own the asset and are using the value tied up in it to help fund another business requirement.

Secured or unsecured business loan?

If your business has suitable assets available, it's worth considering whether secured or unsecured finance is the better option.

An unsecured lender assesses the application without relying on a specific business asset as security. With secured lending, the lender has an asset it can rely on as part of the lending proposal.

Providing security can strengthen some applications, although how much difference it makes will vary between lenders.

There are also additional considerations with secured lending. Your assets are subject to the lender's security, they need to remain appropriately insured, and the lender will register its security interest on the PPSR.

The best option depends on your business, the assets you own, how much you need to borrow and why you need the money.

Read about unsecured business loans

Why use a broker for a secured business loan?

The difficult part isn't simply finding a lender that offers secured business loans.

It's finding a lender prepared to accept the assets you actually have.

Different lenders have different appetites for vehicles, machinery, equipment and other business chattels. They can also value security differently and have different requirements around loan amounts, terms and additional security.

Something one lender won't consider may be perfectly acceptable to another.

We can look at the assets your business owns, what finance is already secured against them and how much you need to borrow before identifying lenders whose criteria may fit.

FAQs about secured business loans