SMBs urged to secure assets, loans ahead of "insolvency explosion"

Small businesses have been urged to secure assets and business loans ahead of an anticipated increase in insolvencies this year.

Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell said small businesses need to secure their assets through the Government’s Personal Property Securities Register (PPSR) in the event of an insolvency.

Operating under the Australian Financial Security Authority, the PPSR is the official government register of security interests in personal property, or loans that have been secured by personal property. The agency works as an online noticeboard where properties like cars, company assets, boats, used goods and intellectual property can be secured.

“Given the incredibly tough past 12 months we’ve had and predictions of a wave of insolvencies to come, PPSR has never been more important,” Carnell said.

“The greatest pity is that many small businesses find it too difficult to use.”

Citing a recent research paper on the PPSR, Carnell said the register “is a powerful tool that can deliver significant benefits” to small businesses if used correctly.

“Many small businesses are not aware that correctly registering their interests can save them a world of pain in the long run,” she said.

“So many small businesses have invested heavily in their businesses over the past 12 months, but few know that they can secure these loans, pushing them higher up the security chain if there’s an insolvency.

“More importantly, small businesses that register their interests won’t need to fight tooth and nail to retain title to their goods if a business customer winds up.”

The research paper also urged that the PPSR system also be overhauled to make it more accessible to small businesses.

“Unfortunately the PPSR in its current form is not making life easier for small businesses,” Carnell added. “The name is confusing, the language is overly technical and the operation of the register is very complicated.”

Carnell said small businesses have had to get a lawyer to help them register their interests, which was an additional cost burden for those struggling.

“Our report recommends streamlining the system, including encouraging small business cloud accounting platforms to provide regtech solutions such as pop-up reminders to small business owners who record a personal loan to the balance sheet, alerting them to register it on the PPSR,” she said.

“I urge the government to implement the recommendations in our report, to build a system that works for the small business community and provides them with the certainty they need.”