Collateral Deed: What It Is And When You Need One

If you’re running a startup or small business, you’ll eventually come across a moment where someone (a lender, investor, landlord or supplier) asks for “security”. That’s usually code for: what can you give us if things go wrong?

One document you may be asked to sign is a collateral deed. It can come up in funding and commercial deals, but it’s also easy to misunderstand - especially if you’re moving quickly and focused on getting the deal done.

In this guide, we’ll break down what a collateral deed is (and what it isn’t), when you might see one, what it normally includes, and the practical steps you can take to protect your business before you sign.

What Is A Collateral Deed (And Why Do Businesses Use One)?

A collateral deed is typically a deed that supports (or “sits alongside”) another agreement - commonly a loan or credit facility, but sometimes a lease, supply agreement, or other commercial arrangement.

In practice, it’s used to give one party extra protection, usually by:

• creating or confirming a security interest over certain assets (or documenting security granted under a separate security agreement);
• setting out additional promises (undertakings) that reduce risk; and/or
• clarifying rights and enforcement steps if the main agreement is breached.

It’s worth noting that “collateral deed” isn’t a single, standardised document name in Australia. Depending on the deal, the security may instead be documented as a general security agreement, a specific security deed, a charge/mortgage (for certain assets), or a combination of documents. The label matters less than what the document actually does.

The “collateral” part doesn’t always mean a physical asset like a vehicle or equipment. In many startup and SME contexts, collateral can include:

• inventory or stock
• plant and equipment
• vehicles
• intellectual property (IP)
• accounts receivable (customer invoices)
• bank accounts and cash proceeds

Collateral deeds are often drafted as deeds (rather than standard contracts) because deeds can be enforceable even without “consideration” (the exchange of value that typically needs to exist for a contract). That’s one reason lenders and counterparties like them: they’re designed to be robust.

When Might Your Startup Or Small Business Be Asked To Sign A Collateral Deed?

You’re most likely to see a collateral deed when your business is asking for something upfront (money, credit, premises, or valuable goods/services) and the other party wants reassurance they can recover losses if you don’t meet your obligations.

Common situations include:

1) Business Loans And Finance Arrangements

When you take out a business loan, the lender may ask for a collateral deed (or another security document) to secure repayment. Sometimes it’s paired with a broader security document such as a General Security Agreement, which can create security over a wide range of business assets.

If you’re raising funds, it’s worth being clear on whether the lender is taking security over:

• specific assets (for example, a vehicle or equipment), or
• everything the business owns (and sometimes everything it will own in the future).

2) Supplier Credit Or Trade Terms

If a supplier is providing goods to you on credit (for example, “pay in 30 days”), they may require security over the goods supplied until they’re paid. This is particularly common in industries with high-value stock.

This is where concepts like “retention of title” and registering security interests can come into play, which is why it’s also relevant to understand how the Personal Property Securities Register (PPSR) works.

3) Leasing And Commercial Premises

Some landlords may require additional comfort beyond the lease itself, particularly if your business is new or doesn’t yet have strong financials. In practice, this could show up as:

• a deed of guarantee and indemnity (from a director or related entity), and/or
• a collateral deed that supports performance of lease-related obligations or documents security for those obligations.

Even if you’re focused on fit-out and rent, it’s worth stepping back and asking: “If we default, what assets can the landlord reach?”

4) Investor Or Shareholder Deals (Less Common, But Possible)

Equity investors typically invest in exchange for shares, not security. But in some structures (for example, where there’s a shareholder loan, convertible note, or founder buy-out arrangement), you may see security documentation alongside the deal.

If you have co-founders or investors involved, it’s also a good time to sanity-check your internal governance documents - for example, whether your Shareholders Agreement and constitution align with any restrictions created by the collateral deed.

What Does A Collateral Deed Usually Include?

A collateral deed can look very different depending on the deal, but most include a few core building blocks. Understanding these sections will help you quickly identify what’s at stake.

Description Of The “Secured Obligations”

This section defines what debts or obligations are being secured. It might be limited and specific (for example, “repayment of $150,000 plus interest”), or it might be broad (for example, “all money owing now or in the future under the facility”).

Broad wording can matter a lot because it can mean the security extends to future amounts, extensions, costs, default interest, enforcement expenses and more.

What Assets Are Covered (The Collateral)

Some collateral deeds cover specific assets. Others create security over “all present and after-acquired property” (sometimes called an “all-assets” position).

If you’re a startup, you’ll want to think beyond physical assets. Your most valuable assets might be:

• your IP (brand, software, designs, content)
• customer contracts and recurring revenue
• platform accounts and data

If these assets are effectively locked up as collateral, it can affect future fundraising, a sale of the business, or even your ability to pivot.

Undertakings And Restrictions

A collateral deed often contains promises about how you’ll run your business while the security exists. These can include restrictions such as:

• not selling or transferring assets without consent
• keeping assets insured and in good condition
• not creating other security interests (or needing consent before you do)
• providing financial reports or access to information

These obligations can feel “administrative”, but they can also become technical breach triggers - especially if you’re moving quickly and not tracking compliance carefully.

Default Events And Enforcement Rights

The deed should set out what counts as default and what the secured party can do if default occurs.

Examples of default can include:

• missing payments
• breaching undertakings
• insolvency events (or sometimes even a reasonable belief you can’t pay debts)
• breaching another agreement with the same counterparty (cross-default clauses)

Enforcement provisions often give the secured party significant rights, including the ability to appoint a receiver or otherwise take steps to recover value from secured assets.

PPSR Registration Obligations (Often Included)

Many collateral deeds anticipate that the secured party will register their security interest on the PPSR. This matters because registration (and other “perfection” steps under the PPSA) can affect priority (who gets paid first if things go wrong) and, in some cases, enforceability against third parties.

From a practical perspective, it’s important to understand that a security interest can exist even if it’s not registered - but registration can significantly change priority and enforcement outcomes, depending on the PPSA rules and the way the security is documented.

If you’re dealing with assets you’ve bought on finance or stock provided on credit, it’s also worth knowing how a PPSR registration typically works in commercial practice.

Key Risks To Watch Out For Before You Sign A Collateral Deed

Collateral deeds can be completely reasonable - and sometimes they’re the only way to get funding or secure a supplier relationship early on.

But because they can have long-term consequences, it’s worth checking for the most common risk areas before you sign.

1) “All Assets” Security When You Only Expected Limited Collateral

One of the biggest surprises we see is when a business owner assumes the collateral is limited (say, a piece of equipment), but the deed is drafted to cover all present and future assets.

If you later want to refinance, raise equity, or sell the business, you may need releases or consents - which can add cost and delay.

2) Collateral That Cuts Across Your Group Structure

Some startups operate with multiple entities (for example, one entity owns IP and another trades). Security documents may try to pull multiple entities into the net through cross-guarantees, indemnities, or “all monies” drafting.

If you’re using a group structure, it’s worth checking whether the collateral deed matches your intended risk boundaries - and whether it clashes with other documents like your Company Constitution.

3) Personal Exposure For Founders Or Directors

Sometimes a collateral deed is paired with a personal guarantee, or the deed itself includes personal promises (depending on drafting and parties).

If you’re signing as a director, it’s important to confirm:

• who the parties are (company vs individual);
• whether you’re signing “for and on behalf of” the company only; and
• whether any personal guarantee or indemnity exists elsewhere in the deal.

Founders often take on personal risk early - but it should be a conscious choice, not an accidental one.

4) Restrictions That Make Day-To-Day Trading Harder

Collateral deeds can include ongoing restrictions (for example, needing consent to dispose of assets). That can be tough for fast-moving businesses that regularly buy, sell, or upgrade equipment, or that rely on inventory turnover.

In practice, you may need to negotiate carve-outs (for example, allowing ordinary-course sale of inventory) so your business can keep operating normally.

5) Conflicts With Other Contracts

Security and collateral arrangements can interact with other key contracts - for example, loan agreements, supplier terms, shareholder arrangements, and customer contracts.

Where possible, aim for consistency across documents. If you’re scaling and onboarding customers, clear customer-facing terms (like Terms of Trade) can help reduce dispute risk and avoid operational surprises that trigger breaches under finance arrangements.

How Do Collateral Deeds Relate To The PPSR In Australia?

In Australia, security interests over many types of personal property can be registered on the PPSR (Personal Property Securities Register).

This is relevant to a collateral deed because:

• a collateral deed may create or evidence a security interest, and
• the secured party may register that interest to protect their position against other creditors (subject to the PPSA rules on attachment, perfection and priority).

If you’re a startup or small business owner, the PPSR can affect you in two major ways:

You May Need To Check Whether Assets You’re Buying Are Already Encumbered

If you’re buying equipment, vehicles, or other valuable assets, a PPSR check can help you avoid buying something that is already subject to another party’s security interest.

That’s particularly important if you’re buying second-hand assets as part of a cost-effective startup strategy.

Your Counterparty May Register Against Your Assets (Or Even Against Your Business)

Once a security interest is registered, it becomes part of the public register. This can matter if you later seek finance - because other lenders may see existing security interests and require releases or postponements.

If you’re unsure what a particular security registration means, it can be worth getting advice before you sign, not after a problem arises.

What Other Legal Documents Should You Have In Place Alongside A Collateral Deed?

A collateral deed often appears at a “milestone moment” in your business - financing, moving premises, scaling supply, or bringing on partners. That’s also a good time to check whether the rest of your legal foundation matches your growth plans.

Depending on your business, you might also need:

• Customer Contract or service terms: to clearly set payment terms, scope, variations and liability boundaries (this is especially important if your cash flow depends on invoices being paid on time).
• Website legal documents: if you sell online or collect enquiries, your Privacy Policy should clearly explain what data you collect and how you use it.
• Employment arrangements: if you’re hiring, a tailored Employment Contract helps set expectations around duties, confidentiality and termination.
• Shareholder / founder documents: where there are multiple owners, clear governance can reduce disputes and help you make decisions quickly (and can be important if lenders want certainty about who can sign and bind the company).
• Supply agreements: if you rely heavily on suppliers, it’s worth making sure delivery terms, quality standards and risk allocation are properly documented.

Not every business will need every document from day one. But the bigger the deal (and the more leverage the other party has), the more important it is that your broader legal setup is consistent and protective.

Key Takeaways

• A collateral deed is a supporting legal document that may give a lender or counterparty rights over specific assets (or sometimes all assets) if you don’t meet your obligations.
• Startups and small businesses commonly see these kinds of security arrangements in loans, supplier credit arrangements, and some commercial property or high-value deals.
• Before you sign, check what obligations are secured, which assets are covered, what restrictions apply, and what counts as default.
• Collateral deeds often link closely with PPSR concepts, including registration/perfection of security interests and priority between creditors under the PPSA.
• It’s worth ensuring your broader documents (customer terms, privacy, employment, shareholder arrangements) are aligned so you don’t create accidental compliance or enforcement risks.

Note: This article is general information only and does not constitute legal advice. For advice on your specific circumstances, speak to a lawyer.

If you’d like a consultation on a collateral deed (including reviewing what it means for your assets and future funding plans), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.