Understanding PPSR:
A Simple Guide for Australian Small Business Owners
As an Aussie small business owner, you’re probably no stranger to the challenges and opportunities that come with running a business. So whether you’re looking to expand operations, buy some new equipment or manage your cash flow, it is important to understanding the ins and outs of the various regulations (and the associated acronyms).
Take PPSR for instance. PPSR is short for the Personal Property Securities Register, which is an official government register in Australia that acts as a public noticeboard for information about security interests in personal property. Personal property includes assets like vehicles, machinery, and equipment, in fact, everything except real estate (that is, real estate).
For example, say you need to borrow money to purchase some equipment for your business, and the lender wants some assurance that they’ll get their money back, you may be required to put the asset up as upfront security – this is where the PPSR comes into play.
When is the PPSR required for Prospa funding?
When you borrow more than $150K in total from Prospa, or you fail to make repayments in accordance with your loan contract, your loan contract states that you grant Prospa a charge over all personal property of the borrower. This means that Prospa is entitled to register a charge over all personal property belonging to your business entity(ies) on the PPSR. This may happen at the following points:
- Upfront, if your new loan means you have over $150K in total Prospa funding; or
- During the life of your loan, if you fail to make your repayments on time. Provided you follow your loan repayment obligations, everything just carries on as normal and no registration will be made on the PPSR, unless your Prospa funding increases to over $150K.
What does having a ‘charge over business entities’ mean?
When Prospa takes a charge over your business entity(ies), it means that Prospa has a security interest in the personal assets of your business to secure the debt that you owe to Prospa. By registering on the PPSR, Prospa is giving notice to all potential buyers or financiers of those assets about Prospa’s interest, which is likely to limit your ability to sell your assets before you have paid out the loan.
Once you have paid out the loan in full, however, Prospa will no longer have any security interest over the assets and Prospa will remove the registration.
How is PPSR different from a caveat?
A caveat is a formal warning or notice that informs the public about a security interest or claim on a land title (property) and is recorded at the land titles registry. When a customer wants to refinance or sell property, having a caveat on that asset will trigger an alert so that they must have the caveat removed, usually by paying out the lender, before they can make the sale.
Prospa doesn’t require a caveat upfront, however a caveat may be lodged if you default on your repayments.
How does PPSR affect your borrowing?
The PPSR is designed to provide a system for individuals and businesses to register their security interests in personal assets.
This helps establish priority (who gets paid first) in case of disputes or insolvency. It also provides a way for potential buyers and creditors to check whether there are any outstanding security interests relating to an asset they are interested in buying or financing.
For example, if a lender loans money to a business and takes a piece of equipment as collateral, they can register their security interest on the PPSR. If the borrowing business defaults on the loan, the lender’s interest in the equipment is protected.
The PPSR isn’t just designed to help lenders, it’s also useful for you. When you borrow funds, you want to know that the assets you’re using as collateral aren’t already tied up in other loans or claims. The PPSR lets you check this.
As an Australian small business owner, understanding how the PPSR works can make borrowing funds for your business smoother and more secure. It’s not about making things more complicated, it’s about providing a clear and fair system for everyone involved in financial transactions.
