Registration of Personal Loans with PPSR
When a bank lends an individual money to buy a house, the bank takes a mortgage over that house. If the borrower is unable to repay the loan to the bank, the bank is able to recover the unpaid portion of the loan from the sale of the house. When a bank lends money to a company, the bank takes security over the assets of the company, including the business operated by the company and its income. If a company is unable to repay the loan to the bank, the bank is able to recover the unpaid portion of the loan from the sale of the assets of the company.
The bank never loses because the bank has security. You as a small business owner need to protect the investment you make in your company like a bank does. That can be done by putting the money you personally invest in your company in the form of a secured loan that is registered on the Personal Property Security Register (PPSR).
This is an insurance policy for when the company gets into financial difficulty, which can happen suddenly and for a number of reasons, including your illness or injury, problems with suppliers or supply chain, problems with customers, bushfire, drought, flood or (of course) a global pandemic.
If the company gets into financial trouble and cannot pay back the loan to you, and the loan has been properly protected with documentation and registration, you will be in the best position to be have that loan paid back to you in priority to other creditors of the business. This could mean that even though the company fails, you as the owner can still put food on the table, start again or avoid personal bankruptcy.
The loan must be in writing, preferably with a separate security agreement and crucially it must be registered on the PPSR. If the security is not registered on the PPSR, then you will rank in priority with the other unsecured creditors, which could mean a significant difference in what is recovered.
In addition to your right to be repaid your investment, if you are protected with a registered secured loan, you will also have the best chance to keep your company, survive and thrive again after financial difficulty. Small business owners often wait too long to get advice when the company is facing financial difficulty. However, if you are properly protected, you can feel confident to get advice at the first sign of difficulty, with options to remedy the problem.
It is preferable to get this protection when the loan is first made. This includes for a new company and in the current circumstances, when you are either putting more money into your business from personal savings, redrawing on the mortgage, a personal loan from the bank or family and friends, credit cards or superannuation. However, money that you have put into the company since incorporation (over a number of years) can also be protected.
With the difficulties that many small businesses are currently facing as we emerge from the effects of Covid and supply-chain issues, owners are increasingly having to put their hand in their pocket just to stay afloat, for expenses including to buy new equipment or stock, marketing and advertising or to meet payroll. These amounts are often substantial and you should get the full value of that investment. Do not invest any more of your own money into your business without contacting us first to put this protection in place.