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Key Legal Considerations for Asset-Based Financing in Australia

As a business owner or decision maker, you may be considering asset-based financing to raise capital for your company. Asset-based financing is a common option for businesses looking to secure funding using their assets as collateral. However, before pursuing this type of financing, it is important to understand the key legal considerations and risks involved.

In Australia, there are specific laws and regulations that govern asset-based financing. These laws are in place to protect both lenders and borrowers and ensure that transactions are fair and transparent. As such, it is crucial to have a solid understanding of the legal framework before entering into an asset-based financing agreement.

Here are some key legal considerations to keep in mind when pursuing asset-based financing in Australia:

Security Interests

When you use your assets as collateral for a loan, the lender will take a security interest in those assets. This means that if you default on the loan, the lender has the right to seize and sell the assets to recover their funds. It is important to ensure that you understand the terms of the security interest and that you are comfortable with the assets being used as collateral. It is also important to ensure that the security interest is properly documented and registered, and that the lender’s rights and obligations are clearly outlined.

PPSA Compliance

The Personal Property Securities Act (PPSA) is the main legislation governing security interests in personal property in Australia. It applies to all types of personal property, including assets used as collateral in asset-based financing. 

To comply with the PPSA, you must ensure that any security interest is properly registered on the PPSA register. Failure to comply with the PPSA can result in the lender losing their priority over the assets, or the assets being subject to competing claims.

Due Diligence

Due diligence is the process of investigating and verifying the information provided by the lender or borrower before entering into an agreement. When pursuing asset-based financing, due diligence involves assessing the value and condition of the assets being used as collateral, as well as reviewing the lender’s reputation and track record. Due diligence can help identify any potential risks or issues with the transaction. It also helps ensure that both parties are entering into a fair and transparent agreement.

Terms and Conditions

The terms and conditions of an asset-based financing agreement will vary depending on the lender and the specific transaction. You need to review and negotiate these terms to ensure that they are fair and reasonable. This includes understanding the interest rate, repayment terms and any fees or penalties associated with the loan. Furthermore, make sure that the terms are clearly documented and that both parties fully understand their rights and obligations under the agreement.

Seeking legal advice before entering into an asset-based financing agreement can help identify any potential legal risks or issues with the transaction. A qualified lawyer can review the agreement and ensure that your interests are protected. They can also provide guidance on any potential legal disputes that may arise and help ensure that the transaction is conducted in compliance with all relevant laws and regulations. 

The Role of Banking and Finance Lawyers in Financing

In addition to seeking legal advice in general, you also need to consider seeking advice from banking and finance lawyers specifically when pursuing asset-based financing. Banking and finance lawyers are legal professionals with specialised knowledge and experience in financing transactions, including asset-based financing.

So what does a banking and finance lawyer do?

Banking and finance lawyers can provide invaluable guidance on the legal considerations and risks involved in asset-based financing. They can help review and negotiate the terms of the financing agreement, ensure compliance with relevant laws and regulations and identify any potential legal issues or disputes that may arise.

Banking and finance lawyers can also provide guidance on the complex legal framework surrounding asset-based financing, including the PPSA and other relevant legislation. They can make certain that all security interests are appropriately recorded and registered, whilst also ensuring that the rights and obligations of the lender are clearly defined.

How Madison Marcus Can Help You

Seeking advice from banking and finance lawyers can help ensure that you are entering into an asset-based financing agreement that is fair, transparent and legally sound. They can help you navigate the legal considerations and risks involved, as well as provide guidance on the best strategies to protect your interests.

Looking for legal guidance on asset-based financing transactions? Contact Madison Marcus today to speak with our experienced banking and finance lawyers. With a deep understanding of the legal complexities and risks involved, our team can help ensure that your interests are protected and that your transaction is legally sound. 

For all enquiries, contact us here


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