The Smarter Path to Financial Returns

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Helpful news, tips and business advice for small to medium business owners about how to maximise profit, minimise waste and grow and protect your business.

Find out what can be used as security for a loan with PSA Capital Investments.

What Can Be Considered as Security for a Loan?

When you’re seeking a loan, especially for your business, understanding what can be used as security is a must. At PSA Capital Investments, we’re committed to helping you navigate these key financial decisions with clarity and confidence.

What Exactly Is Loan Security?

Simply put, Loan Security is an asset you pledge to a lender as collateral for a loan. Loan Security is crucial in business financing, just as it is in personal lending. It’s about offering an asset as collateral to secure a loan, ensuring lenders have a fallback if the loan isn’t repaid. This could be your property, equipment (be it marine equipment or trucks), business assets, or even cash reserves.

Houses as Prime Security

One of the most common and valuable forms of security is real estate, particularly houses. Why? Because they usually have high value and can be sold by the lender to recover funds if you default on the loan. However, it’s a double-edged sword – if you can’t make your repayments, there’s a real risk of losing your property.

Equipment and Asset Collateral

For many businesses, equipment or specific assets can be used as collateral. This includes everything from heavy machinery and trucks to high-value technology or specialised equipment. Using business assets can sometimes be more appropriate than pledging personal property.

Guarantors in the Mix

A guarantor can also provide security for a loan. They promise to pay back the loan if you can’t. This is a big commitment, so it’s vital for guarantors to fully understand their responsibilities. Your business partner or a relevant stakeholder can effectively serve as a guarantor for your loan. They should have a genuine stake in the business or a close relationship with you and possess sufficient assets to secure the loan.

The Intricacies of Property as Security

When we talk about property as security, it can either be the property being purchased with the loan or another property you own. For example, it’s not uncommon for parents to use their own home as collateral for their child’s property loan. The value of the property is assessed by a professional to determine how much can be lent against it.

Some Properties Just Aren’t Suitable

Lenders are choosy about the properties they accept as security. They prefer properties that are easily sellable. Property types that might not be favoured by lenders can include studio apartments, heritage-listed properties, and high-value luxury properties.

Commercial Properties as Security

While residential properties are common collateral, commercial real estate can also serve as prime security for business loans. This includes office buildings, warehouses, or retail spaces. The key is that the property should have significant value and be marketable.

Changing Your Loan Security

You can change the property securing your loan through a process known as loan portability. This is particularly useful if you’re moving to a new house but want to retain your existing loan.

The security for your loan doesn’t always dictate how you use the loan funds. For instance, you might secure a loan against an investment property but use the funds for entirely different purposes. It’s the use of the funds, rather than the security, that often matters more for tax considerations.

Go Beyond Traditional Lending

At PSA Capital Investments, we understand that sometimes traditional lending doesn’t work for every business. That’s where we come in. We offer a range of lending solutions, designed to help your business navigate rough financial waters and get back on course. Our approach is all about flexibility, fairness, and understanding your unique business needs.

Looking for a loan with friendly terms? Contact us on (03) 9847 7813 – we’re here to help you find the best financial solutions to support your business goals.

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PSA’s Director, Peter Marmara-Stewart, is a highly successful business owner and finance professional in Melbourne. As a certified Financial Planner with over 15 years of experience in business finance, accounting, and asset management, he provides clients with unparalleled expertise in asset protection, debt elimination and business restructuring. Call (03) 9847 7689 and see how Peter and the PSA team can help you get on the smarter path to financial returns.