Part 2: More About Your Loan Security


IN THE LAST article, you read about two different types of security that lenders can take other than the mortgage. They were “Fixed and Floating Charges” and “Personal Guarantees”.

However, there are a few other forms of security that you should be aware of before entering into any agreements. Read on to find out more.

Several Guarantees

With certain structures, for example, if a borrowing entity is a unit trust, it may be possible to have each unit holder provide a “several” guarantee.

This means the unit holders are providing guarantees over the value of their unit holding rather than over the debt as a whole.

This is a preferable security structure to a full personal guarantee and will sometimes be allowed where the security is income producing. Or when there is a personal guarantee provided from the director of the trustee company.

Joint and Several Guarantee

This is where the bank takes multiple personal guarantees for a debt, that is, each guarantor is fully personally liable for the whole debt.

If you are providing a guarantee under this structure, be careful to ensure you are not guaranteeing debts in excess of those that you have an interest in.

It is also important to understand the financial position of your co-guarantors if you take out this type of loan.

All Monies Clauses

These clauses basically secure this debt together with any other debts the banks have with the borrower or guarantor.

For example, if a company has two properties funded by one bank and an all-monies clause is in place — effectively it means defaulting on one of the debts is the same as defaulting on all debts.

Even if the debts are not “cross-collaterised”.

It is particularly important to watch out for these clauses, if you are providing a joint and several guarantee with other borrowers.

Moreover, these clauses are one reason it is often advisable to diversify lenders (if you hold a significant amount of debt) … for asset protection.

Second Mortgages

A second mortgage is where the lender registers a mortgage over a property, but agrees to sit behind a senior lender.

In order to enter into a second mortgage, the senior lender will be required to provide consent by way of a priority deed to allow a second mortgage to be lodged behind them.


This form is similar to a second mortgage but slightly less substantial in terms of lender’s security position.

A caveat is registered over a title to secure an interest for a lender.

The major difference with a second mortgage is that multiple parties can lodge caveats over one title and no consent is required from a first mortgagee to do so.

BOTTOM LINE: Lenders will generally look for more security than simply the mortgage provided, when you apply for a commercial loan. And it is very important to understand what you are signing.

In my next article, I will go through some situations where it may be possible to reduce your security exposure, when using some of the above forms of security, in order to maximise your asset protection.


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