If you’re raising money, buying equipment on finance, taking out a business loan, or even supplying goods on credit, you’ll likely come across a security agreement.
For many startups and small businesses, a security agreement can feel like “bank paperwork” you sign and move on from. But it’s a document with real consequences. It can affect what happens if cash flow gets tight, what assets you can sell, and whether a lender (or supplier) can claim business property ahead of other creditors.
The good news is that once you understand the basics, security agreements are much less intimidating. In this guide, we’ll walk you through what a security agreement is, when you’ll see one, how it fits into the PPSR system in Australia, and what to watch out for before you sign.
What Is A Security Agreement (And Why Does It Matter)?
A security agreement is a contract where you agree that one party (usually a lender, financier, or sometimes a supplier) gets a legal interest in certain property to secure what you owe them.
In plain English: if you don’t pay (or you otherwise default under the agreement), they may have rights over the secured property.
This is different from an “unsecured” arrangement, where the other party might still sue you for non-payment, but they don’t have special rights over specific business assets.
What “Property” Can Be Covered?
In Australia, security agreements often deal with personal property (not land). This can include:
- equipment and machinery
- vehicles
- stock/inventory
- accounts receivable (money customers owe you)
- intellectual property (in some cases)
- all present and after-acquired property (a broad “all assets” type of security)
That last one-security over “all present and after-acquired property”-is common in business lending and is sometimes documented as a General Security Agreement. It’s one of the broadest forms of security, because it can cover most (or all) business assets.
Why You Should Care (Even If You’re Excited To Get Funding)
Security agreements can be commercially reasonable and very normal-especially if you’re borrowing funds to grow. But they also create obligations and restrictions that can impact how you run your business.
For example, a security agreement may:
- limit your ability to sell secured equipment without consent
- require you to maintain insurance over secured assets
- require you to keep assets in good condition
- allow enforcement steps if you default (which can include repossession or taking control of assets in some cases)
Understanding the document before you sign helps you avoid nasty surprises later-particularly if your business needs to restructure, refinance, or sell.
When Will A Startup Or Small Business Need A Security Agreement?
In practice, you might deal with a security agreement in a few common scenarios.
1) Business Loans And Working Capital Facilities
If you borrow from a lender, they may ask for security over specific assets (like a vehicle) or over all business assets (via a general security arrangement). The security agreement is the document that sets out the security interest and the rules around it.
2) Equipment Or Vehicle Finance
Buying equipment “on finance” often means the financier will take security over that item until it’s paid out. Sometimes the financier effectively retains strong rights over the asset until you complete payment, even if you’re using it day-to-day.
3) Supplier Credit And Retention Of Title (ROT) Terms
Some suppliers supply goods on credit terms with “retention of title” clauses-meaning they say they keep ownership of the goods until you pay in full. In Australia, these arrangements can operate as security interests under the PPSA and may need to be registered, and timing can be critical (more on this below).
If you’re a business that sells physical products, it’s worth keeping an eye on your supplier terms so you understand what rights they’re claiming.
Sometimes funding comes from a director, founder, or related party, and the parties want security to keep things clear. In that case, you might document it with a secured loan and (depending on the structure) a security agreement.
Where security is involved, it’s also common to see a secured loan document such as a secured loan agreement alongside the security agreement, so the “money terms” and “security terms” are both properly covered.
5) Buying Or Selling A Business (Or Doing Due Diligence)
If you’re buying a business-or buying key assets-you’ll want to know whether those assets are already tied up under a security agreement and registered on the PPSR. This matters because a security interest can sometimes continue even after an asset is sold, and it can affect what you actually receive on completion.
When you’re doing a purchase, a proper legal due diligence package will usually include checks around encumbrances (including PPSR registrations) so you can identify risks early.
How Does A Security Agreement Work Under The PPSA And PPSR In Australia?
This is where security agreements become much more “real” in practice.
In Australia, most security interests over personal property are governed by the Personal Property Securities Act 2009 (Cth) (often called the PPSA). The public register used to record these interests is the Personal Property Securities Register (PPSR).
If you’re seeing these terms for the first time, you’re not alone. The PPSR system can feel technical, but the concept is straightforward: it’s a public register that helps establish priority between creditors.
Security Agreement vs PPSR Registration: What’s The Difference?
- The security agreement is the contract that creates the security interest and sets out the rules between the parties.
- The PPSR registration is a public notice that a secured party may lodge to help protect their position and priority against other creditors.
Think of the agreement as the deal, and the PPSR registration as the public flag that tells the world the deal exists.
It’s also worth knowing that “perfection” under the PPSA isn’t only achieved by PPSR registration. Depending on the type of collateral, a security interest can also be perfected by possession or control (for example, certain financial assets). Which method applies can matter for priority and enforcement outcomes.
To understand the PPSR framework more broadly, it can help to start with PPSR basics.
Why PPSR “Priority” Can Affect You
If your business runs into trouble, multiple parties might claim rights over the same property (for example, the bank, a supplier, and a finance company). The PPSA rules decide who ranks first.
Often, a properly perfected interest (including one perfected by registration, where registration is the right method) will have better priority than an unperfected one. That’s why lenders and financiers usually insist on registering their interest.
From your perspective as a small business owner, this matters because:
- you may have less flexibility to sell or refinance assets that are secured
- your “available assets” might look different to future lenders or investors
- you need to understand what you’re agreeing can be enforced if you default
If You’re The One Extending Credit
Security agreements aren’t only for lenders. If you supply goods on credit, lease equipment, or otherwise extend value before being paid, you might want to take security too-so you’re not left at the back of the line if the customer becomes insolvent.
In that case, you may consider taking and perfecting a security interest, which is commonly done by registering a security interest on the PPSR (as well as having the right terms in your contract). If your security is a retention of title arrangement, it may also be a type of purchase money security interest (PMSI), and getting the registration details and timing right can be crucial for priority.
What Should You Look For In A Security Agreement Before You Sign?
A security agreement isn’t just “yes/no” security. The details matter. Here are the clauses that commonly create issues for startups and small businesses.
What Assets Are Secured?
Start by identifying the collateral:
- Specific asset security: e.g. “the coffee machine with serial number X”
- Class of assets: e.g. “all vehicles” or “all inventory”
- All present and after-acquired property: a broad “all assets” grant
If it’s broad, make sure you understand the practical impact. Broad security can make it harder to get additional finance later, because future lenders may also want priority over those same assets.
What Is The “Secured Obligation”?
Most security agreements secure a debt-like principal plus interest plus enforcement costs. But some are drafted to secure “all monies” or all obligations under a broader relationship.
That can be fine, but it’s important to know what you’re putting on the line. If you’re signing multiple documents at once (loan terms, guarantees, facility letters), check how they interact.
What Counts As A Default?
Default is not always just “miss a repayment”. Security agreements often include broader default triggers, such as:
- breaching a reporting obligation
- insolvency events
- cross-default (defaulting under another agreement triggers default here too)
- failing to maintain insurance over assets
Knowing the default triggers matters because default can unlock enforcement rights.
What Enforcement Rights Does The Secured Party Have?
Security agreements can include the secured party’s rights if there’s a default. Depending on the agreement, the type of collateral, and the PPSA framework, that might include rights to seize and sell assets, collect receivables, or appoint someone to deal with the secured assets.
For a small business, enforcement action can be business-ending, especially if it involves key operational assets. That’s why it’s worth understanding what “worst case” looks like before you sign-so you can negotiate, plan, and manage risk properly.
Are There Any Restrictions On Your Business Operations?
Security agreements sometimes include ongoing covenants (promises) that affect how you operate. For example:
- you must not dispose of assets without consent
- you must keep assets at a particular location
- you must provide regular financial reporting
- you must not grant other security interests without approval
None of these are automatically “bad”, but they can be a problem if they don’t match how your business actually runs (especially if you’re scaling quickly).
How Do You Put A Security Agreement In Place (Step-By-Step)?
If you’re being asked to sign a security agreement-or you want to use one in your own business-having a clear process helps you move quickly without missing key risks.
1) Clarify The Commercial Deal First
Before you get into legal drafting, make sure the business terms are clear, including:
- how much is being lent or financed
- repayment timing and interest (if any)
- what assets are being secured
- whether personal guarantees are involved
This makes the legal document much easier to review (and harder for misunderstandings to slip in).
2) Check Your Business Structure And Signing Authority
Who is signing, and in what capacity? This is especially important if you operate through a company.
If you’re a company director, your constitution and internal approvals can matter. In some cases, your Company Constitution (and any shareholder arrangements) may set out signing requirements or approval processes for major financial commitments.
Security agreements rarely live alone. They usually sit alongside:
- a loan or finance agreement
- terms of trade (if it’s supplier security)
- a guarantee (if the lender wants personal security too)
- other security documents (if multiple asset classes are involved)
Inconsistencies between documents can create disputes later. It’s much easier (and cheaper) to fix mismatches before signing than after there’s a problem.
4) Consider Whether A PPSR Registration Is Required (And Who Does It)
If the other party is taking security, they will usually register on the PPSR. If you’re taking security (for example, you supply goods on credit with retention of title), you may need to register to protect your position-and if it’s a PMSI, the registration timing rules can be especially important.
PPSR is a big topic, but it’s worth understanding how the register works and why businesses use it to protect assets-this is explained well in the context of PPSR registrations.
5) Run A PPSR Check Before You Buy Key Assets
If you’re buying equipment, vehicles, or even buying a business, a PPSR check can help you confirm whether there are existing security interests registered against the asset.
That’s particularly relevant if you’re buying second-hand equipment or acquiring a business where assets are central to value. If you’re unsure about the practical steps, a PPSR overview can help you understand what you’re checking and why it matters.
6) Get The Agreement Reviewed Before You Sign
Security agreements often look “standard”, but the terms can still be negotiable-especially around the scope of assets, default triggers, reporting obligations, and enforcement mechanics.
Getting advice early can also help you spot flow-on issues, like whether the security blocks a future capital raise, complicates a sale, or conflicts with existing finance.
Key Takeaways
- A security agreement is a contract that gives another party rights over certain business assets if you don’t meet your obligations (usually repayment, but sometimes other defaults too).
- Security agreements are common for business loans, equipment finance, and supplier credit arrangements (including retention of title terms).
- In Australia, security interests over personal property usually fall under the PPSA. Many are registered on the PPSR (and in some cases perfected by possession or control), which can affect priority between creditors.
- Before signing, check what assets are secured, what counts as default, what operational restrictions apply, and how enforcement could work in practice.
- If you supply goods or extend credit, you may also use security agreements to protect your position-often alongside PPSR registration, and sometimes with PMSI timing requirements to maintain priority.
- Reviewing a security agreement early can prevent finance, sale, and growth roadblocks later (especially if the security is broad “all assets” security).
Note: This article is general information only and doesn’t constitute legal advice. Because security arrangements and PPSA/PPSR outcomes can depend heavily on the specific asset type, wording of the documents, and registration (including timing), it’s a good idea to get advice on your circumstances.
If you’d like help reviewing or drafting a security agreement (or making sure it works properly with PPSR registration), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
