Loans are quite common between businesses — whether that be with a bank or with another business.
There are two main types of business loans: secured and unsecured.
Secured loans, however, are seen as a lot safer for lenders. This is because a secured loan holds a security over the debt.
And, to effect that security in writing, you’ll need a General Security Agreement.
What Is A General Security Agreement?
Like we mentioned, secured loans hold security over a debt. So, if the person defaults on that loan, the lender has rights they can enforce to receive the money they are owed.
A General Security Agreement basically puts this promise, or guarantee, in writing. This way, parties will be under a legal obligation to follow through with the security agreement.
Why Do I Need A General Security Agreement?
A General Security Agreement sets out the terms by which your personal property can be held as security for a loan.
Typically, you should also have a proper Loan Agreement in place. And, in some cases, that Loan Agreement would have terms around security (if it is a secured loan).
However, on a practical basis, some businesses prefer to have an entirely separate General Security Agreement to be extra safe.
A General Security Agreement gives the lender the right to register their security interest on the Personal Property Securities Register (PPSR) and make a claim over the secured property in the event the borrower defaults on the loan.
So, if you’re ever providing a business loan with security, it’s a good idea to have a General Security Agreement in place.
What Should A General Security Agreement Contain?
Like any other agreement, a General Security Agreement should be tailored to the unique requirements of your arrangement.
So, it should cover the key details and the process to follow if the borrower defaults on the loan. Either way, a General Security Agreement should contain these standard terms:
- How the security or collateral will be delivered
- The obligations of the borrower and lender
- Any warranties or representations made
- An outline of the lender’s rights to the security or property
- What will happen if the borrower defaults
- How the agreement can be terminated
- If notice is required for any specific action
How Do I Register A General Security Agreement?
There is a certain process you need to follow, which involves a description of the property, details of the parties to the agreement and how long the registration will last.
In other words, you’re officially registering that interest with the PPSR to notify them of your arrangement.
Who Needs To Sign A General Security Agreement?
Usually, the borrower is the party that needs to sign the agreement. This is because the lender needs written confirmation that you will provide security in the case that you do not repay your loan as promised in the agreement.
What Should I Consider Before Signing A General Security Agreement?
If you’re borrowing money from a lender and they ask you to sign a General Security Agreement, think carefully before you sign. There are a number of factors to consider, such as how the agreement might slow down or become a barrier to some of your business activities.
Before you sign, you may want to check that you’re not agreeing to an unnecessarily excessive amount of security. In other words, the property you’re offering as collateral may be too much for what is actually being borrowed.
It’s worth getting a legal professional to help you review the agreement and ensure the security interest is proportionate to the amount being borrowed.
Further, signing a General Security Agreement with one party may affect your ability to enter into similar agreements with other parties. So, this can prevent you from taking out other loans for other aspects of your business.
If you want to prioritise other business dealings, you may want to think twice before you sign a General Security Agreement.
If you need help with a General Security Agreement, our experienced lawyers are here to help. You can reach out to our friendly team on 1800 730 617 or firstname.lastname@example.org for a free, no-obligations chat about your specific situation.
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