Security, decoded: what a lender is actually asking for when it says 'we'll need security'

“We’ll need some security.” Lenders say it so casually that it’s easy to nod along without asking what it means for you. It could mean a charge over a truck. It could mean your family home. It could mean a promise on your name with no asset attached at all.

Those aren’t the same risk, and the difference decides how much a loan really costs you if things go badly. This guide walks through what each kind of security is, how a lender decides what it’s worth, and which questions to ask before you hand it over.

What is security, and why does a lender need it?

Think of a lender as having two exits. The first and preferred exit is that you repay from the business’s cash flow. The second is that, if you can’t, the lender recovers its money from something it can sell.

Security is the second exit, written down and registered so that it holds up against other creditors. A lender with strong security can lend more, lend for longer, and wait out a rough patch rather than rushing to act.

Banks do this very well, and when you fit their criteria their offer is worth serious consideration, because security often buys cheaper money. If a bank has declined you, other lenders look at security differently, and the sections below show how.

What types of security do business lenders take?

Type	What the lender holds	Recorded where	Typical use
Registered mortgage	Formal claim over land, with a power of sale	State land titles office	Larger, longer loans
Caveat	A notice on the title stopping most dealings	State land titles office	Fast, short-term loans
General security agreement	A claim over most business assets	PPSR	Most business loans
Specific asset security	A claim over one machine, vehicle or invoice	PPSR	Equipment and invoice finance
Cash or term deposit	Money held by the lender	Lender’s own records	Bank guarantees, small lines
Personal guarantee	A personal promise to pay	The loan documents, not a register	Almost every company loan

Our guides on the general security agreement and the PPSR go deeper on the business-asset side. For the property side, see how Torrens title affects business loans.

How does a lender decide what your security is worth?

Not the way you would. You think of your property’s value as what you’d list it for. A lender thinks of what it could realistically recover if it had to sell in a hurry, then subtracts what’s already owed.

Three adjustments do the work:

1. A valuation. For property, usually an independent valuer instructed by the lender. See how valuations work for business loans.
2. A discount. Expressed as the loan-to-value ratio. The lender lends only a percentage of the value, lower for specialised property, rural land or anything hard to sell. Our piece on LVR explains the numbers.
3. Prior claims. Existing mortgages and registrations come off first. Only the “equity” left over is useful as new security.

Business assets are discounted harder. A lender might count stock at a fraction of its cost, because forced-sale stock sells slowly and cheaply. Vehicles and equipment lose value with age, and receivables are counted only if they’re recent and owed by creditworthy customers.

A worked example: a builder owns a property valued at $1.2m with a $600k mortgage. A lender that will go to 70% of value sees $840k of lending room, not $1.2m. After the existing mortgage, there’s about $240k left. That, not the headline value, is the security available for a new loan.

Who ranks first when there’s more than one lender?

Ranking decides who gets paid first from a sale. For property, mortgages generally rank by registration order, and a caveat is a weaker claim than a registered mortgage. For business assets, the first to register on the PPSR generally ranks first, with special rules for a lender who financed a particular asset.

Second-ranking security still has value, but a lender in second place only gets what’s left after the first lender is paid in full. That’s why second-ranking loans are harder to approve and tend to cost more in total. Our situations page on when a bank wants more security than you have covers what to do if you’re short.

What does a personal guarantee add?

A guarantee isn’t an asset, but lenders treat it like security because it extends the lender’s reach to someone else’s wealth. If the borrower is a company, a guarantee from the directors gives the lender a path to personal assets that the company doesn’t own.

Many owners underestimate this. A guarantee can survive after you leave the company, and a loan secured over business assets can still land on you personally if the sale of those assets doesn’t cover the debt. Read the guide to personal guarantees before signing. If you’re asked to put your home behind the business, the risks of using your home as security is worth ten minutes.

Wondering what security would actually be needed for your loan? Tell us the amount and purpose. Enquiring takes about a minute.

Does “unsecured” mean no security at all?

Not quite. An unsecured loan means no specific asset is pledged against the loan. But the lender may still:

• Ask for a director guarantee
• Take a general claim over the company’s assets, or reserve the right to
• Register an interest on the PPSR
• Lend only a small amount and for a short term, so there’s little to lose

Unsecured lending is often quick, and it suits smaller needs. It relies on your trading history and cash flow rather than assets, which is why it tends to be limited. The secured versus unsecured guide sets out the trade-off properly.

What should you ask before offering security?

Put these questions to the lender, and get answers in writing:

• Exactly what are you taking? Which assets, which property, which guarantors?
• Does it secure only this loan or everything I owe you? The “all-monies” question.
• Can I swap or reduce security later? For instance, once the loan is half repaid.
• What happens on default, and what notice do I get?
• How is it released? Who lodges the discharge, how long it takes, and what it costs.
• Is there a cheaper or safer structure? Sometimes a smaller loan against one asset beats a big loan against everything.

Security also needs tidying at the end. A mortgage should be formally discharged, a caveat withdrawn and a PPSR entry removed. Our guide on removing caveats after a loan is repaid shows what the release steps look like on the property side.

What if you don’t have much security?

Lots of good businesses don’t. A service business may own little beyond a laptop and a ute, and a young company may have no property. Options worth exploring:

• Asset-specific finance where the thing you’re buying is the security
• Invoice finance, where your customers’ invoices stand behind the facility
• A smaller, unsecured facility to build a repayment record
• A guarantor or a part-secured structure that spreads the risk

Lenders that specialise in property-secured lending work the other way round: they may care more about the equity in a property and a clear plan to repay than about years of trading figures, which suits some owners the banks don’t.

Ready to see what your security could unlock?

If you’re not sure whether your assets count for much, that’s a good reason to ask. Our enquiry form takes about a minute, and enquiring won’t affect your credit file. We don’t send your details to a pile of lenders; a real person reads your situation and calls you to talk options. Fill it in as accurately as you can, including what’s already mortgaged or registered, so the first option we raise is one that fits.

See what your assets could support →