Security requirements are one of the most misunderstood aspects of commercial lending. This guide explains what actually counts as security, at what LVR, and how to structure your security position to maximise your outcome without unnecessary personal exposure.
Security is what a lender can realise if the borrower cannot repay. It is not the primary basis for a commercial approval decision. Serviceability is. But it significantly influences the facility terms, the LVR offered, and in some cases whether a lender will participate at all. Getting the security analysis right before approaching a lender prevents the common outcome of an approval with conditions requiring more security than you expected.
Residential or commercial property is the most widely accepted form of security in Australian commercial lending. LVRs typically range from 65-80% for commercial property and 70-85% for residential property, depending on location, lender appetite, and loan purpose.
Equipment, vehicles, and plant being financed on a chattel mortgage or finance lease serve as security for asset-backed facilities. The lender holds a registered security interest in the asset until the loan is fully repaid. LVR depends on asset type, age, and market resale value.
For invoice finance and debtor finance, the outstanding receivables are the security. The lender advances against verified, eligible invoices, typically 70-85% of the approved debtor book. The facility grows as your debtors grow.
Directors and trustees providing a personal guarantee expose their personal assets to the lender's claim in the event of business default. A personal guarantee is not the same as a registered mortgage but it creates real personal liability that needs to be understood before signing.
Loan-to-Value Ratio is the proportion of the security value that the lender will advance. A property valued at $1,000,000 with an 80% LVR supports a loan of $800,000. Every lender applies different LVR limits by asset class, location, and loan purpose. Presenting your security position accurately and knowing which lender applies the most favourable LVR for your specific assets directly determines how much you can borrow and at what terms.
Linking multiple properties to a single loan creates convenience for the lender but unnecessary concentration risk for you. If one property in a cross-collateralised structure declines in value, it can affect the entire loan. Krishna advises on when cross-collateralisation is unavoidable and how to ring-fence security when it is not.
Where possible, limiting security to business assets rather than the family home reduces personal exposure. Not all lenders require residential property security for commercial facilities. The right lender and facility structure can often achieve the same approval without touching personal assets.
A business loan without security is available for smaller facilities and borrowers with strong credit conduct. These carry higher rates reflecting the lender's increased exposure but preserve security capacity for larger future requirements. Krishna advises on the trade-off based on your specific position.
Before approaching any lender, Krishna maps your available security, its current market value, and the LVR each lender in the GPS Finance network would apply. This means the lender recommendation reflects your actual security position, not an optimistic assumption that falls apart during due diligence.
Get a Free Security Assessment →Krishna will map your security position and tell you honestly what it supports and what it does not, before anything formal is submitted to any lender.
General Advice Warning: Information in this guide is general in nature and does not constitute financial or credit advice.