Secured Business Overdraft: Using Property for a Bigger Limit
What a secured business overdraft is, what property or cash security lenders take, how it is registered, and how to check what is held over your business.
Business Owners Hub
Secured Overdraft · Property Security · PPSR
Would putting property behind your overdraft actually get you a bigger limit? Often it does, because the lender stops sizing the limit on trading alone. Here is what a secured business overdraft is, what security lenders take, how it is registered and how to check what is already held over your business.
Quick Answer
A secured business overdraft is an overdraft limit backed by property or cash security, which usually lets a lender approve a larger limit than it would on the business's trading alone. The security is registered, and a PPSR organisation search plus a title search show what is held. Compare it with a business line of credit before you commit property.
Also called: secured bank overdraft, property-secured overdraft, secured overdraft facility. They mean the same thing; "facility" is the bank's word for the approved limit.
What is a secured business overdraft?
A secured business overdraft is an overdraft on your business account where the limit is backed by an asset the lender takes a registered interest in, usually property or cash. Day to day it behaves like any overdraft: the account can go below zero up to the limit and interest runs on the drawn balance. The business overdraft guide covers how the facility works in use; this post is about the security underneath it.
The difference is how the limit is sized. Without security, a lender sizes the limit off trading, bank statements and the directors' standing, and that usually caps it well below what a growing business needs. With security behind it, the lender has a second way to be repaid if the business cannot clear the balance, and that fallback is what lets property lift the limit.
What lenders actually look at first is the security itself: what it is worth on their own numbers, what is already owing against it, and who ranks ahead of them. Only then do they turn to whether the business can carry the interest on the limit as if it were fully drawn, which is the serviceability test.
What security do lenders take for a secured overdraft?
Lenders most often take a registered first mortgage or second mortgage over property, or cash held on term deposit with them, and they usually take a general security agreement over the business's other assets alongside. A director's guarantee is nearly always asked for as well, but it is a promise, not a charge over an asset.
| Security | Where it is registered | What it covers | What happens when the overdraft closes |
|---|---|---|---|
| First mortgage over property | On the property's title at the state land registry | The property, with this lender ranking first | The lender signs a discharge of mortgage, which is registered on the title once everything secured is repaid |
| Second mortgage | On the title, ranking behind the existing first mortgage | The equity above what is owed to the first lender | Discharged on the title; the first mortgage is unaffected |
| Cash or term deposit | Held by the lender under a charge and set-off rights in the facility documents | The deposit, usually up to its full balance | The deposit is released once the facility is closed and cleared |
| General security agreement | On the PPSR, against the business | The business's present and future personal property, such as equipment, stock and receivables, but not land | The lender should remove the PPSR registration once nothing is secured; search the register to confirm it has gone |
| Director's guarantee | Not registered; it is a signed promise, not a registered charge over an asset | The director personally, to the extent the guarantee sets out | Released by the lender, which can depend on other facilities still in place |
Property is what moves the limit. A general security agreement on its own rarely supports much more than trading already does, because a lender recovers little from used equipment and debtors in a wind-up. A registered mortgage over property is different: land holds value, the lender's priority is recorded on the title, and the limit can be sized off the equity.
How much bigger a limit can property security support?
Property security can support a limit up to the usable equity in the property: the lender's valuation multiplied by its maximum loan to value ratio, less any debt already secured against it. The result is the most the security could support, illustrative only and varies by lender, and it still has to pass the serviceability test before it becomes an approved limit.
| Line | Example figure |
|---|---|
| Property value, on the lender's valuation | $1,000,000 (example only) |
| Lender's maximum LVR (illustrative, varies by lender) | 70%, so up to around $700,000 of total lending |
| Existing mortgage | $400,000 (example only) |
| Usable equity | Around $300,000 |
| Limit the security could support before serviceability is tested | Up to around $300,000, before the lender tests whether the business can carry it |
Three things usually pull the real number below the example. The valuation is the lender's own, not an agent's appraisal, and it is often lower. Maximum LVRs tend to be lower on commercial, rural or specialised property than on a house. And security only sets a ceiling: the business still has to show it can meet the interest if the whole limit is drawn.
What the property adds
- Gives the lender a registered fallback
- Lets the limit be sized off equity, not trading alone
- Can support a limit trading would not justify on its own
What caps the limit
- Capped by the lender's valuation, not yours
- Capped by a maximum LVR that varies by lender and property type
- Reduced by any debt that ranks ahead
- Still tested for serviceability on the full limit
If the limit you already have is the real problem, the guide to an overdraft limit that is too small sets out the other ways to lift it, including whether security is the right one.
Does a secured overdraft cost less?
A secured overdraft often carries a lower rate than an unsecured one because the lender's risk is lower, but the saving is not guaranteed and the set-up costs are higher. Valuation, legal and registration costs, which vary by lender, come with any mortgage, and some lenders price a business overdraft mainly on trading risk whatever sits behind it.
The overdraft rates and fees guide covers what overdrafts typically cost, and the unsecured business overdraft guide sets out the difference between a secured and an unsecured overdraft, including the two types side by side.
How is the security registered for a business overdraft?
Security is registered in one of two places, depending on what it is: a mortgage over land goes on the property's title at the state land registry, and a general security agreement or other security over the business's personal property goes on the Personal Property Securities Register. The overdraft limit is not usually available until every registration listed in the facility letter is complete, which typically adds time to approval and varies by lender.
How is a mortgage over property registered?
A registered mortgage over property is lodged on the title, usually electronically by the lender's lawyers, once the owner has signed the mortgage documents. Registration records the lender's interest and its priority, so anyone who searches the title can see it. For a second mortgage, the first mortgagee may need to consent or be notified before it can be registered. Each state runs its own land registry, and the Queensland business overdraft insight shows what that changes for owners there.
How is a general security agreement registered on the PPSR?
A general security agreement is registered on the PPSR as a financing statement against the grantor: a company is identified by its ACN, other organisations by their highest identifier, such as an ABN, and a sole trader as an individual. The registration covers the classes of personal property described in the agreement and stays in place until the lender removes it.
How do you check what security is registered against your business?
You can check what security is registered against your business in three places: a PPSR organisation search for personal property, a title search on each property for mortgages, and the security schedule in your facility letter for what the lender says it holds. Running all three before you apply tells you what ranks ahead of a new lender, and a new lender runs the same searches before it lends.
What does a PPSR organisation search show?
A PPSR organisation search is a low-cost online search, run against the business's identifier, usually its ACN, that shows whether security interests are registered against its assets. The PPSR explains how to do an organisation search on its own site. The results list each registration, the secured party and the class of collateral.
They do not show mortgages over land, which only appear on the title. The same register is used when you buy a vehicle or equipment, and our insight on PPSR checks for asset and vehicle finance covers that side.
The facility letter matters as much as the registers. Many mortgages and general security agreements secure every amount owed to that lender, not just the overdraft, so a property offered for the overdraft can end up standing behind a vehicle loan or a term loan with the same lender as well. Read the security schedule and the definition of what the security covers before you sign.
Can someone else's property secure your business overdraft?
Another person's property can secure your business overdraft through a third-party mortgage, and the owner is usually asked to sign a guarantee as well. The owner becomes a guarantor, and their property is exposed if the business cannot clear the balance.
Lenders typically require the property owner to get independent legal advice before signing, and some will only accept a third-party mortgage from a director or a close family member. A director's own home is the most common example, and the guide to a director's guarantee covers what that promise commits the director to. Whether to offer your home or a family member's property as security, and what that means for your personal liability, are questions for your solicitor.
A secured business overdraft trades extra paperwork and registration time for a limit sized off property rather than trading alone. The lender's valuation, its maximum LVR, any debt ahead of it and a serviceability test decide the real number, so the security sets a ceiling, not a promise. For business owners weighing their options, the Business Owners Hub brings the overdraft, line of credit and term loan routes together.
Key takeaway: run a PPSR organisation search and a title search before you offer property, so you know what already ranks ahead of the new lender.Frequently Asked Questions
A secured overdraft is an overdraft limit backed by security the lender registers, most often a mortgage over property or a cash deposit. Because the lender has that fallback, it can usually approve a larger limit than the business's trading alone would support. The overdraft itself still works the same way, with interest charged only on the drawn balance.
A higher overdraft limit is usually available with property security, because the lender sizes the limit off usable equity as well as trading. That limit is still capped by the lender's own valuation, its maximum loan to value ratio and a serviceability test, all of which vary by lender. Where property is not available, a business line of credit sized on trading is the other route to compare.
A secured overdraft facility is used for the same jobs as any business overdraft: covering the gap between paying suppliers and getting paid, seasonal stock, and wages in a slow month. The security makes a bigger buffer possible, not a different purpose. Our guide to using a revolving facility safely covers how to keep that buffer from becoming permanent debt.
If a secured overdraft is called in and the balance is not cleared, the lender can move to enforce its mortgage, which can end in the property being sold. Enforcement follows the notice and default steps in the facility documents and any code the lender subscribes to, and there is often room to refinance or negotiate first. The guide to a recalled overdraft facility walks through those steps in order.
A second mortgage can secure a business overdraft when there is enough equity above the first mortgage, although not every lender will take second-ranking security behind an overdraft. The first mortgagee's consent or notice may be needed, depending on its mortgage terms. Where the overdraft lender will not take a second mortgage, a standalone second mortgage loan is another way to release that equity.
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