Here at Fifo Capital we know the financial landscape can be particularly challenging for small and medium enterprises (SMEs) in New Zealand. One tool that can significantly impact the success and security of business transactions is the Personal Property Securities Register (PPSR). Understanding and utilising the PPSR is crucial for SMEs to protect their interests, secure funding, and manage risks effectively. In this blog, we explore why the use of the PPSR is important and how it can benefit your business.
What is the PPSR?
The Personal Property Securities Register (PPSR) is a national online register where businesses and
individuals can record security interests in personal property. This includes a wide range of movable
assets such as equipment, vehicles, inventory, and receivables. The PPSR provides a transparent and
accessible way to establish priority over these assets in case of debtor default or insolvency.
Importance of the PPSR for SMEs
1. Securing Financing: One of the primary benefits of the PPSR for SMEs is its role in securing financing. When a business applies for a loan, lenders often require collateral. By registering a security interest on the PPSR, businesses can use their assets to secure loans. This registration gives lenders confidence that their interest is protected, making them more likely to approve funding. Fifo love’s the PPSR!
2. Protecting Interests: For SMEs that provide goods or services on credit, registering a security interest on the PPSR is essential to protect their interests. If a customer defaults on payment, the registered security interest gives the SME legal rights over the collateral, allowing them to recover their assets or value.
3. Establishing Priority: The PPSR operates on a first-to-register basis, meaning that the priority of claims is determined by the order in which security interests are registered. By promptly registering interests, SMEs can ensure they have a higher priority over other creditors in case of a debtor’s insolvency. This priority can be crucial in recovering debts and minimizing losses.
4. Risk Management: Registering interests on the PPSR helps SMEs manage risks associated with extending credit or entering into financing agreements. It provides a legal framework to enforce claims, reducing the uncertainty and potential losses that can arise from unpaid debts or disputes over asset ownership.
5. Enhancing Credibility: Utilising the PPSR demonstrates that an SME is knowledgeable and proactive about managing its financial and legal affairs. This can enhance the business's credibility with lenders, suppliers, and partners, fostering trust and potentially leading to better terms and opportunities.
How to Use the PPSR Effectively
1. Identify Assets: Determine which assets can be used as collateral or need protection. Common assets include machinery, vehicles, inventory, and accounts receivable.
2. Register Security Interests: Use the PPSR to register your security interests promptly. Ensure all relevant details are accurately recorded to avoid disputes or challenges to your claim.
3. Monitor and Update: Regularly monitor the PPSR to ensure your registrations are up to date and reflect any changes in your business or assets. Timely updates are essential to maintaining the validity and priority of your interests.
4. Conduct Due Diligence: Before entering into agreements with other businesses, conduct a search on the PPSR to check for existing security interests. This due diligence can prevent conflicts and ensure you are aware of any potential claims on assets.
5. Seek Professional Advice: The PPSR can be complex, and it’s important to fully understand its implications. Consider seeking advice from legal or financial professionals to ensure you are using the PPSR effectively and in compliance with the law.
Real-World Applications
Example 1: Securing a Business Loan
A small manufacturing company in Auckland wants to expand its operations but needs additional funding. The business uses its equipment and inventory as collateral for a loan from a financial institution. By registering these assets on the PPSR, Fifo is assured of it’s security interest, leading to loan approval with favourable terms. This registration not only facilitates the loan process but also establishes the lender’s priority in case of default.
Example 2: Protecting Supplier Interests
A wholesale distributor in Wellington supplies products to various retailers on credit. To protect its interests, the distributor registers a security interest in the inventory supplied. When one retailer faces financial difficulties, the distributor’s registered interest on the PPSR allows it to reclaim the unsold inventory, minimising financial loss.
Final Thoughts
For Kiwi SMEs, the PPSR is a powerful tool that provides legal protection, facilitates access to finance, and enhances overall business stability. By understanding and effectively utilising the PPSR, SMEs can secure their interests, manage risks, and create a solid foundation for growth and success. Don’t overlook the importance of this register in safeguarding your business’s future.
For more information about the PPSR, give us a call – 0800 863 436, or email us at [email protected]. We would love to hear from you.