Collateral

Collateral is what stands behind your promise to repay. You pledge an asset, the lender records its claim over it, and if repayments stop, that asset can be realised to clear the debt. Australian lenders mostly call this security; the two words are interchangeable.

Why do lenders care so much about collateral?

Collateral changes the lender’s worst case. Without it, recovering a bad debt depends on the business or its owners having money left to pay. With it, there’s a specific asset to fall back on. That lower risk is why secured loans are generally available in bigger amounts, over longer terms and at a lower total cost than unsecured ones.

Banks are at their best here. A business with solid trading history and good property security will often get the cheapest money from its bank, and that offer deserves serious consideration. Where a bank’s security demands outstrip what you own, or doesn’t accept the asset you have, non-bank and private lenders often take a broader view. If that’s your position, read bank wants more security than you have for a ranked set of alternatives.

What counts as collateral, and how is each type recorded?

Collateral	How the lender records its claim	Typical lender attitude
Residential property	Mortgage or caveat on the land title	Strongest; highest loan-to-value limits
Commercial or rural property	Mortgage on the land title	Strong, but usually lower limits than housing
Vacant land	Mortgage on the land title	Accepted by fewer lenders, more conservatively
Vehicles and equipment	Registration on the PPSR	Discounted for age, type and resale market
Unpaid invoices	Registration on the PPSR	Advanced as a percentage of approved debtors
Term deposit	Charge over the account	Very low risk; can support a bank guarantee

Company borrowers are often asked to sign a general security agreement, which covers all of a company’s present and future business assets in one document and is registered on the PPSR.

Worked example: turning a property into usable collateral

A Perth fitness studio owner wants $250k to open a second site. Their home is valued at $1.1m with $640k left on the mortgage. A lender willing to go to 80% of the home’s value would cap total borrowing against it at $880k. Subtract the existing $640k and the property supports roughly $240k of new borrowing, slightly short of the target.

The owner could offer studio equipment as additional security, reduce the amount, or look at a lender with a different limit. Lenders rarely lend against full market value: the discount, sometimes called a haircut, covers sale costs, time and the risk of values falling. Try your own figures in the property equity calculator or the LVR calculator.

Have property or equipment you could offer? A one-minute enquiry is enough for us to assess what it might support.

Watch the fine print

• Cross-collateralisation: if one lender holds several of your properties under linked security, selling or refinancing one can need the lender’s sign-off on all of them. See cross-collateralisation.
• Guarantees: a personal guarantee isn’t collateral, but it makes the guarantor personally liable, which can put their own assets in reach.
• All-assets clauses: a broad security agreement can catch assets you didn’t intend to pledge. Read the security schedule before signing.

Related terms: secured loan, loan-to-value ratio, chattel, encumbrance. For a side-by-side view, read secured vs unsecured business loans.

Find out what your assets can unlock

Equity in a home, a commercial building or a fleet of vehicles can often do more for your business than you’d expect. Spend a minute on our form; enquiring leaves your credit record alone, since we run no credit check at this stage. Your details aren’t distributed to other lenders, which spares you a week of unexpected sales calls. Instead, someone from our team weighs up the security you have and rings to discuss it. Accurate property values and loan balances help us point you to the right secured business loan on the first try.

See what your security could support →