Protecting Your Related-Party Business Loans

Business owners often lend cash from one entity to another entity for working capital purposes or to assist with buying an asset.

To maximise the probability that your loans will be repaid, you can take security over the business’s assets through a process known as “Personal Property Securities Register (PPSR) Loan Protection”. The introduction of the Personal Property Securities Act 2009 (Cth) revolutionised how security interests concerning personal property are managed across Australia. The Act created the PPSR, which brings security and transparency to the forefront of business dealings. Within this framework, business owners gain the ability to establish security interests and effectively protect their assets.

But what exactly constitutes “personal property”?

Essentially, it encompasses any form of property excluding land, buildings, and fixtures. From tangible assets like vehicles, boats and equipment to intangible ones such as patents, copyrights and debts. Even financial assets like shares, cash and promissory notes find their place within this realm. The PPSR acts as a notice board. The PPSR is not a title or document register but rather, provides notice as to whether there is or isn’t a security interest against any particular property.

Registration strengthens your protection over that personal property, which is important if there are two competing interests in the property. For instance, when various lenders share an interest in the security pledged for a loan, registration on the PPSR establishes a pecking order. Priority is established, ensuring that a registered security interest gains precedence over an unregistered one.

Benefits of Registering Security Interest on the PPSR

If any legal action was taken against your business by a creditor, an employee or a customer and your business was then placed into administration or into liquidation, the loan from you to the business would be viewed as a secured loan. This means that in the unfortunate event of administration or liquidation your loan would rank as a secured creditor which gives you priority over unsecured creditors (i.e. subject to available equity, your loan should be repaid in full before
any unsecured creditors are entitled to payments).

By embracing this proactive approach, you are a secured creditor of your own business which can
give you confidence in de-risking the funds lent to your business.

Next Steps

If you’re interested in learning more about securing any loans made to your businesses and how the
PPSR could help protect your hard earned wealth, then give us a call. We’re here to help.