Secured Loans Explained | Sprintlaw Australia

Access to funding can be a turning point for a growing business - whether you’re buying stock, hiring your first team members, investing in equipment, or extending your runway while you scale.

But funding is rarely “just money”. The way a loan is structured (and what you agree to as security) can have long-term legal and commercial consequences for your business and, sometimes, for you personally.

If you’ve been searching for what a secured loan is, you’re likely weighing up whether to take on finance that’s backed by collateral, and what that means in practical terms. In this guide, we’ll break down how secured loans work for Australian small businesses and startups, what “security” really means, how the PPSR fits in, and what to look for before you sign.

What Is A Secured Loan?

A secured loan is a loan where the borrower provides the lender with security - usually a legal right (known as a “security interest”) over certain assets (called “collateral”) that the lender may be able to enforce if the borrower doesn’t repay the loan.

In other words, the lender gets comfort that if something goes wrong, they may have rights to recover their money from the secured assets (subject to the contract terms and the relevant enforcement process under Australian law, including the PPSA where it applies).

This is different to an unsecured loan, where the lender has no specific rights over particular assets and instead relies primarily on:

your promise to repay under the loan agreement;
your cash flow and creditworthiness; and/or
any personal guarantees (if required).

Why Do Lenders Prefer Secured Loans?

From a lender’s perspective, security reduces risk. That can mean:

they’re willing to lend a larger amount;
they offer better interest rates (not always, but often);
they approve finance faster if they’re comfortable with the assets on offer; and
they can enforce their rights if there’s a default (in accordance with the contract and applicable law).

For a small business owner, the trade-off is simple: you may get improved access to funding, but you’re giving the lender legal rights over assets that might be critical to operations.

“Secured” Doesn’t Always Mean “Property Mortgage”

Many people hear “secured” and think of a mortgage over real estate. In business lending, security can be taken over many types of assets - especially “personal property” like equipment, vehicles, inventory, accounts receivable, and sometimes even intellectual property.

This is where concepts like the PPSR and General Security Agreements become important (we’ll cover those below).

How Do Secured Loans Work In Practice For Businesses?

When you take out a secured loan, there are typically two layers of legal obligations happening at the same time:

The repayment obligation: you agree to repay the principal, interest, and any fees, according to the repayment schedule.
The security arrangement: you grant the lender rights over specified assets (or a class of assets), which the lender may be able to enforce if there’s a default.

Common Business Scenarios Where Secured Loans Show Up

Equipment and asset finance: buying vehicles, machinery, fit-out items, or specialist equipment.
Working capital facilities: where a lender takes security over business assets generally.
Trade finance and inventory funding: security may be taken over stock or proceeds of sales.
Startup runway loans: some lenders may want security (or a combination of security and a personal guarantee), particularly if the business is pre-profit.
Refinancing: replacing an unsecured facility with secured debt to improve terms.

What Counts As “Default” (And Why It Matters)

One of the biggest practical issues with secured loans is that “default” can be broader than simply missing a repayment. Depending on the loan agreement, default might also include:

breaching financial ratios or covenants (for example, maintaining certain revenue, liquidity, or asset values);
giving incorrect information to the lender;
insolvency events (or steps towards insolvency);
non-payment of certain liabilities (for example, tax or superannuation) by required deadlines (this is commonly drafted into finance documents, but whether it applies to you will depend on your circumstances and the contract terms - and you should get appropriate advice if you’re unsure); or
a key contract ending (in some industries where a major customer contract is essential).

That’s why it’s important to read the “Events of Default” and enforcement clauses carefully - they define when the lender can step in and exercise rights over your assets.

What Enforcement Can Look Like

If a default occurs, enforcement options depend on the contract and the type of security. Practically, this might include (to the extent permitted under the agreement and applicable law):

appointing an external controller (like a receiver) to take control of assets or collections;
taking steps to seize, take control of, and/or sell specific assets (such as equipment), following the process required by the security arrangement and (where relevant) the PPSA;
directing payments from debtors to the lender; and/or
restricting your ability to sell assets or trade as normal.

This is also why a “secured loan” can affect your flexibility - even if you’re not in default, there may be ongoing restrictions on how you operate.

What Can You Use As Security (Collateral) In Australia?

Security can be taken over many different asset types. What’s acceptable depends on the lender and your business model, but common forms include:

Specific equipment: vehicles, machinery, computers, tools, medical equipment, etc.
Inventory: stock and goods held for sale.
Accounts receivable: money owed to your business by customers (sometimes called a receivables facility).
Bank accounts / cash: some arrangements include control over an account.
Intellectual property: trade marks, domain names, and software rights may be relevant in some deals.
All business assets: where security is “general” rather than limited to one asset.

General Security Vs Specific Security

One key question is whether security is limited to a particular asset (specific security), or covers most or all of the business’s assets (general security).

A very common structure in Australia is a General Security Agreement (often called a “GSA”). This generally gives the lender a security interest over a broad category of your business assets (sometimes present and after-acquired property).

GSAs can be commercially convenient, but they can also significantly reduce your future funding options - because another lender may be reluctant to lend if most assets are already secured.

How The PPSA And PPSR Fit In

In Australia, many security interests over business assets are governed by the Personal Property Securities Act 2009 (Cth) (PPSA) and are recorded on the Personal Property Securities Register (PPSR).

A PPSR registration is essentially a public notice that a lender (or another party) claims a security interest over particular assets.

This matters for two big reasons:

Priority: if multiple parties claim security interests, priority rules can determine who gets paid first.
Due diligence: if you buy equipment, vehicles, or a business, you’ll want to know whether those assets are already “encumbered” by someone else’s security interest.

If you’re not sure how this works, the concepts are explained clearly in what is the PPSR and Personal Property Securities Register (PPSR).

And if you’re purchasing a vehicle or equipment (or taking security over it), it’s smart to get comfortable with the idea of running a check - for example, by using a PPSR check as part of your due diligence process.

Key Legal Documents You’ll See In A Secured Loan (And What They Usually Do)

Secured lending documentation can look intimidating, especially when you’re trying to move quickly as a startup. The good news is that most secured loans include recurring concepts and document types.

Here are some of the most common documents and provisions to watch for.

Loan Agreement

This sets the commercial deal: how much you’re borrowing, interest, fees, repayment schedule, and the key legal terms.

It’s also where you’ll find many of the clauses that can create risk if you don’t spot them early (for example, broad default events, heavy reporting obligations, or restrictions on your operations).

Depending on the structure, you may see a dedicated Loan Agreement (Secured) along with separate security documents.

Security Document (Such As A GSA)

This is where you grant a “security interest” over assets.

If the deal uses broad security, you might be signing a General Security Agreement, which can affect:

your ability to sell assets outside ordinary course of business;
your ability to grant security to other lenders later (without consent);
what happens if you restructure, merge, or change control; and
your obligations to keep assets insured and maintained.

Personal Guarantee (Sometimes)

Even if the loan is “secured”, a lender may still ask you (as founder/director) to give a personal guarantee - especially if the business is early-stage or has limited assets.

A personal guarantee can mean that if the company can’t repay, the lender may pursue you personally for the shortfall.

For many founders, this is the real commercial pressure point: the business risk becomes personal. If you’re signing a guarantee, it’s a good time to slow down and get advice.

Undertakings, Covenants, And Reporting Requirements

“Covenants” are ongoing promises you make during the life of the loan. Common examples include:

providing regular financial statements and management reports;
not taking on more debt without consent;
not paying dividends (or restricting distributions);
maintaining minimum cash reserves; and
not changing the nature of the business without approval.

For startups, covenants can be a hidden issue because a business model can change fast. You want the contract to match the reality of how you’ll operate, especially if you’re pivoting or scaling.

PPSR Registrations

If the lender is taking a PPSA security interest, they will usually register it on the PPSR.

From your perspective, it’s important to understand:

what assets the registration covers;
how long the registration lasts; and
what needs to happen for it to be removed once the loan is repaid.

It’s also worth ensuring the registration is accurate - mistakes can create problems later (especially when you try to refinance, sell the business, or sell assets).

Practical Steps Before You Accept A Secured Loan

Secured loans can absolutely make sense for growing businesses. The key is to approach the deal with your eyes open, so you don’t accidentally block future funding options or take on security terms that don’t match your risk appetite.

1. Get Clear On What You’re Actually Securing

Ask (and confirm in writing) whether security is:

limited to a particular asset (for example, one vehicle); or
“all present and after-acquired property” (which is much broader).

If it’s broad, consider what that means for future lending, investor expectations, and operational flexibility.

2. Check Whether The Business Even Owns The Asset

This sounds obvious, but it’s a common issue.

For example, if a director personally owns a vehicle, or a related entity owns equipment, it may not be available as security unless that owner is part of the security arrangement. Similarly, if you’re leasing equipment, you may not own it in a way that makes it “good” collateral.

3. Think Ahead: Will You Need More Funding Later?

If you’re a startup planning to raise capital or refinance in 6-18 months, broad security today might create friction later.

Future investors and lenders will often ask:

What security interests already exist?
What priority do they have?
Can they be released or subordinated?

The earlier you plan for this, the easier it is to avoid last-minute surprises during fundraising or an acquisition process.

4. Review The Default Clauses Like Your Business Depends On It (Because It Might)

Default clauses are where many business owners get caught out. It’s not just about whether you can make repayments today - it’s about whether the agreement gives the lender enforcement rights if something changes tomorrow.

It’s often worth negotiating:

reasonable cure periods (time to fix a breach);
materiality thresholds (so trivial breaches aren’t “default”); and
clear notice requirements before enforcement.

5. Confirm Who Is Signing (And In What Capacity)

Make sure you know whether the borrower is:

you as a sole trader;
your company; or
a group structure (with cross-guarantees or related entities involved).

If it’s a company borrowing, directors also need to be mindful of their broader obligations when taking on debt.

6. If You’re Buying A Business Or Major Assets, Run PPSR Due Diligence

If you’re purchasing a business, buying a vehicle, or acquiring equipment second-hand, a PPSR check can help you avoid buying assets that are still subject to someone else’s security interest.

This is particularly relevant in asset-heavy industries (construction, trades, transport, healthcare, hospitality fit-outs) where equipment often has finance attached to it.

7. Get The Documents Reviewed Before You Commit

Secured loans can be fast-moving. But once the documents are signed, you may be locked into restrictive terms that can be hard (and expensive) to unwind later.

Having the loan and security documents reviewed can help you:

understand what assets are actually at risk;
spot “gotcha” defaults and broad enforcement powers;
identify whether you’re personally exposed (guarantees and indemnities); and
negotiate changes before you’re committed.

Key Takeaways

What is a secured loan? It’s a loan backed by collateral, giving the lender legal rights over assets if the loan isn’t repaid.
Security can be over specific assets (like a vehicle) or broad assets (like all business property under a General Security Agreement).
In Australia, many security interests are recorded on the PPSR, which can affect priority and future financing.
Secured loan documents often include more than repayments - default clauses, covenants, guarantees, and enforcement powers can materially affect how you run your business.
Before signing, you should confirm exactly what is secured, consider future fundraising/refinance plans, and check PPSR details where relevant.
Getting a secured loan reviewed early can prevent costly surprises and help you negotiate terms that fit how your startup actually operates.

If you’d like a consultation about a secured loan for your small business or startup, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Secured Loans Explained: What They Mean For Your Business