Does your business owe you money?

When a business is just starting out, most business owners pay for the start up costs out of their own pocket. And sometimes businesses pay their shareholders a dividend at year end but don’t have the cash to actually pay it, so it goes into their loan account. But if the business goes through some financial difficulties, how do you know that your loan is secure?

Most advisers have encouraged their small business clients to account for cash they lend between entities for working capital purposes or the investment they make in their business as a loan. That will then be reflected in the company’s books.

But, is it sufficient for the loan only to be recognised in the company’s books? If the loan is not repaid before the company faces financial difficulty, let alone insolvency, simply recording the loan in the books is likely inadequate to protect your investment or your business.

What is the PPSR?

In order for an owner to have the best chance of repayment of their investment, or to use that investment to effectively restructure and keep the company, the loan must be secure and documented with a valid security and registered on the PPSR.

The PPSR is a register of security interests in personal property. Security interests are created by an agreement where a person can take property if a debt is not repaid.

Why should you register?

Registering your loan securely on the PPSR can protect you and give you extra rights in the property it’s registered over. This is especially important if the person who gave you the interest goes insolvent.

A registration also offers other protections such as ranking you at a higher priority over other security interests. If you don’t register, anyone else who has registered a security interest on the PPSR could be ahead of you in the queue to get their goods or money back if your customer goes insolvent. This is because you will likely be an unsecured creditor, and generally secured creditors are paid first.

How can we help secure your loan?

The team at Stone Accountants can help you secure your loans to your company or your loans between entities and register your security on the PPSR for a fraction of the cost that lawyers are able to do this. If you would like our help with this or want to discuss your options please contact us!