Quick answer
In business lending, security is an asset you pledge so the lender can recover its money if you don't repay. Common examples in Australia are a mortgage or caveat over property, a charge over vehicles or equipment, a general security agreement over company assets, and cash held in a term deposit. Lenders don't value all security equally: the easier an asset is to sell for a known price, the more they'll lend against it.
Key points
- Also called collateral: the asset a lender falls back on after a default
- Not the same as 'securities', which means shares and bonds
- Property is usually the most highly valued security for business loans
- Lenders lend a percentage of the asset's value, not the full amount
The word causes some confusion because finance uses it two ways. On the share market, “securities” are investments like shares and bonds. In lending, security means something quite different: the asset standing behind a loan, which a lender may seize and turn into cash after a default. business.gov.au’s glossary also treats it as another word for collateral.
The main types of security in Australia
Real property. Houses, units, commercial buildings, farms and land. The lender’s claim is recorded on the title at the state land registry, usually as a registered mortgage and sometimes as a caveat. Property is the security Australian lenders like most, because it holds value and has a deep market of buyers.
Specific personal property. A truck, an excavator, a coffee machine or a CNC router. The lender’s claim is logged on the PPSR, the national register for personal property, and the asset can be repossessed after a default.
All the company’s assets. A general security agreement gives the lender a claim over everything the business owns now and later, from stock and debtors to equipment.
Receivables. Unpaid customer invoices, used in invoice finance.
Cash. Money parked in a term deposit with the lender, commonly backing a bank guarantee given to a landlord.
Why lenders value some security above others
A lender never lends dollar for dollar against an asset. It lends a percentage, expressed as a loan-to-value ratio, and that percentage falls as the asset gets harder to sell.
| Security | Typical lender attitude |
|---|---|
| Residential property in a capital city | Easiest to sell; supports the highest lending ratios |
| Commercial or industrial property | Strong, but valuations depend on tenants and location |
| Vacant land or rural property | Accepted by fewer lenders and at lower ratios |
| Near-new vehicles and mainstream equipment | Good resale market; financed against the asset itself |
| Specialised machinery and fit-outs | Hard to resell; often valued well below cost |
| Stock and general business assets | Valued cautiously; often a top-up rather than main security |
This is why two owners with the same equity on paper can get very different offers. Someone with $400k of equity in a suburban house usually has more borrowing room than someone with $400k tied up in a custom-built commercial kitchen.
An example
A Hobart café owner wants $120k to open a second site. Against the existing café’s fit-out and equipment, the bank offers very little: a used fit-out has almost no resale value once it’s removed from the premises.
The owner also has about $350k of equity in their home. Offered as security, the home transforms the application. The lender can now support the full amount on a longer term, and the total dollars repaid fall because the risk has shifted. Test your own numbers with our LVR calculator, or ask us to look at it.
Security and what happens in a default
Holding security gives a lender priority. ASIC’s guide for creditors explains that secured creditors can appoint a receiver to sell secured assets, and that this right continues even if the company goes into liquidation. Unsecured creditors wait for whatever is left. That priority is why lenders accept lower pricing when strong security is offered.
Related terms
Collateral, security interest, secured loan, encumbrance and unencumbered.
Wondering which of your assets would count?
Many owners underestimate what they have, while others assume they need property when they don’t. Our pages on home equity vs commercial property as security and business loans without property cover both sides.
We’re happy to sort through it with you. The enquiry is a single short form, about a minute’s work, and sending it leaves your credit file alone. Your information isn’t shopped to a crowd of lenders. Someone here reads it properly and phones to talk through which assets could help. Be precise about what you own and what’s already owing against it, and we’ll get to the right answer faster.
Frequently asked questions
Is security the same as collateral?
In everyday use, yes. Both describe the asset a lender can claim if the loan isn't repaid. Lawyers sometimes draw finer distinctions, but for a business borrower the terms are interchangeable.
Is a personal guarantee a form of security?
Strictly, no. A guarantee is a promise by a person to pay if the business doesn't. It isn't a claim over a specific asset, although the lender can pursue the guarantor's assets through the courts. Lenders often list guarantees alongside security as 'support' for a loan.
Why won't the lender lend the full value of my property?
Values can fall, selling costs money and takes time, and interest keeps running during a default. Lending only part of the value, measured as a loan-to-value ratio, leaves a buffer so the lender is still repaid in a forced sale.
Can I offer someone else's property as security?
Yes, if the owner agrees. They'll sign the mortgage and usually a guarantee, and lenders typically require them to get independent legal advice first, because their property is at risk if the business can't repay.
When is the security released?
Once the loan is repaid in full. The lender lodges a discharge of mortgage or withdrawal of caveat for property, or removes its registration from the PPSR for other assets.