“Security” is one of those words everyone uses and few people unpack. But the security you give determines what happens if things go wrong, how much you can borrow, and how easy it is to borrow elsewhere later. Here’s the plain-English version for New Zealand businesses.
Why lenders take security
Security gives the lender a legal right to recover what it’s owed from a specific asset (or a person, in the case of a guarantee) if the loan isn’t repaid. More and better security means less risk for the lender, which generally means more lending available and fewer questions about other things, such as financial statements.
Security over land: mortgages
A mortgage is a registered interest over land (including the buildings on it), recorded on the title. It gives the lender rights including, ultimately, a power to sell the property if the loan is in default, subject to the legal process.
First and second mortgages
When there’s more than one mortgage, they rank in order of priority:
| First mortgage | Second mortgage | |
|---|---|---|
| Paid from a sale | First | From what’s left after the first |
| Lender’s risk | Lower | Higher |
| Typical lender | Bank, non-bank or private | Non-bank or private |
| Consent | Not needed from others | First mortgagee’s consent often required |
| Use | Main property lending | Releasing equity behind an existing loan |
A second mortgage lets you borrow against equity without refinancing the first loan. See second-mortgage business funding.
Caveats
A caveat is a notice lodged on a title claiming an interest. It can prevent certain dealings with the property without the caveator’s knowledge, but it isn’t the same as a registered mortgage. Some lenders use caveats in specific circumstances; most business lenders prefer registered mortgages.
Security over everything else: the PPSR
For personal property (anything that isn’t land: vehicles, equipment, stock, receivables, even intellectual property), security interests are recorded on the Personal Property Securities Register, run by the Companies Office. The register is governed by the Personal Property Securities Act 1999 and operates on a broad “first to register” priority basis, with important exceptions.
General security agreements (GSAs)
A GSA gives a lender security over all present and after-acquired property of a business, typically everything except land. Banks commonly take a GSA alongside business lending. If you have one, it may affect your ability to give security to other lenders. Check before you sign anything new.
Specific security
Asset financiers take security over the particular asset being funded. It’s registered on the PPSR against that item (for vehicles, often by serial number). See asset finance explained.
Purchase money security interests
A special category that can give a financier of a specific asset priority over an earlier GSA holder, provided it’s registered correctly and on time. It’s one reason asset finance can sit alongside a bank’s GSA.
Personal guarantees
A personal guarantee is a promise by a person, usually a director, to repay the company’s debt if the company doesn’t. It’s common in small business lending, bank and non-bank alike. It means your personal assets can be pursued even if you haven’t given a mortgage over them. Some guarantees are secured over the guarantor’s property; others aren’t. Always take independent legal advice.
Third-party security
Sometimes someone else, such as a family member or a related entity, offers their property as security for your business loan. It can unlock lending, but it puts their property at risk. They must get their own independent legal advice. See alternatives to borrowing from family.
How security affects what you can borrow
- Stronger security → more options. Property equity opens the door to larger amounts and lighter paperwork.
- Existing security → less room. An existing bank GSA or first mortgage limits what others can take.
- No security → sized on turnover. Unsecured lending leans on cash flow instead.
Five checks before you give security
- What exactly is secured? One property, all assets, or everything you’ll ever own?
- What else is already secured? Check your titles and search the PPSR against your business.
- Does an existing lender need to consent?
- What happens on default? Read the enforcement provisions with your lawyer.
- How is it released? When the loan is repaid, confirm discharges are registered.
Where we fit
We arrange property-secured business loans from $20,000 to $1m as first or second mortgages, even if the property already has a mortgage, and unsecured loans and lines of credit sized on turnover. A lending specialist will explain what security each option involves before you commit.