Looking to turn that business idea into a reality? Whether it’s to launch a startup or expand your existing operations, you’ll most likely need to either secure additional funding from third parties or fund the business yourself. You can do this by entering into a loan agreement and securing your interest.
A security agreement is a type of legal document that provides lenders with the right to make claims over specific assets or property that borrowers pledge as loan collateral.
What is a general security agreement?
After the enactment of the Personal Property Security Act 2009 (PPSA), lenders and borrowers can enter into a general security agreement.
Under a general security agreement, a lender will have rights upon a default or failure to pay against the assets of your company.
What is the purpose of a general security agreement?
With a general security agreement, a lender can efficiently and effectively obtain security over personal property. In the event that the borrower fails to repay or defaults on their loan, the lender may have the rights to seize or sell the secured property.
It is difficult to explain but think of it as a mortgage or caveat over your house. When you fail to pay the bank, the bank can step in and sell your house. This is similar to how a general security agreement works for assets other than real property (i.e. land).
What must a good security agreement contain?
When drawing up a general security agreement, make sure to include the following clauses:
- grant of security interest
- delivery of the collateral
- obligations of the debtor/borrower
- the debtor or grantor’s representation, warranties, covenants and agreements
- the grantor’s rights to the collateral
- conditions of default and remedies in the event of default
- reimbursement of secured party
- termination of the agreement
- what happens upon termination
How do you register a general security agreement?
Generally, anyone with a security interest on a personal property can register online on the PPSR. There are several requirements for registration, and they are as follows:
- a description of the personal property (collateral type and class)
- details about the grantors (individuals or organisations) who gave the security interest
- whether the security interest is a purchase money security interest (PMSI) or not
- the duration of the PPSR registration
- additional details depending on the collateral class selected
Before you create a PPSR account, make sure that you have all the above information.
Frequently Asked Questions
1. Does a general security agreement cover real property?
No, a GSA does not cover real property. It is specifically precluded under legislation.
2. Can general security agreements apply to sole traders?
Yes. As mentioned previously, anyone–whether individual, business, or organisation–with an interest on collateral property can register on the PPSR.
3. Who needs to sign a security agreement?
For a security agreement to be effective, it must be signed by both the debtor and the owner of the pledged collateral.
Legal Assistance for Your General Security Agreements
When drawing up a general security agreement for a transaction, it’s critical to review both the GSA and the loan agreement to ensure consistency. For practical and to-the-point advice on your lending and security transactions, contact TNS Lawyers on (03) 9052 3214 or send in your enquiry via our Contact Us form.
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