This is Part 2 of a 2-part series, exploring the importance of safeguarding your client’s investments by registering loans to provide the necessary protection and control, particularly during insolvency. 

In today’s unpredictable business environment, it’s more essential than ever to ensure your clients protect the personal investments they make or have made in their businesses.  By having a written, secured loan registered, you provide the best opportunity to safeguard your client and protect your practice.

This article explores the importance and benefits of securing business loans, the risks of unprotected loans and how to implement affordable solutions to register your client’s financial interests. 

The Advantages of Documenting and Registering Loans

Small business owners are commonly advised to “invest” money in their business as a loan, for the associated tax benefits.  If that money has already been invested and is recorded as a loan on the books, there is no reason that the loan should not be documented and registered, so long as it is simple and cost effective to put that protection in place.  It gives business owners the full value of their investment to control their survival.

The Benefits of Secured Loans During Insolvency

Secured creditors control the insolvency process and owners in that position have the best chance to either recover their investments, keep the assets of the business or keep their business.  Protecting loans of as little as $50,000 with a documented security that is registered on the PPSR can have a significant affect on the ability of a small business owner to have options and control if they find themselves approaching or in the insolvency regime.  The larger the outstanding amount of the loan, the greater the opportunity to control that process.

Timing and Benefits of Securing Business Loans

Whilst the best time to protect an owner’s loan is at the time that it is made, the next best time to put that protection in place is as soon as possible, even if that loan is five or ten years old.  The issue is to ensure that the protection is put in place as far away as possible than when your client may need to consider insolvency.

The Risks of Unprotected Loans

The alternative to not having your client’s loan to their business protected as a registered secured loan is not having any protection at all, where the chances of saving your clients, or recovering any part of their investment, is reduced and the cost of doing so is usually significantly increased.  If your client can’t be saved, it will have significant consequences for your own practice. 

With the current headwinds for business still prevailing, an accountancy practice needs only see 5% of its clients fail for it to see a seven-figure hole on the balance sheet.  That is both the lost fees of a client that must be replaced but also the WIP incurred in the usually time-consuming exercise of assisting a client in financial distress, or fees that are paid being recovered by a liquidator.

Affordable Solutions for Loan Registration

If your clients do not want to spend the fees on a lawyer putting this protection in place, they need to find another option.  Krodok offers a quick and inexpensive online platform to put that registration in place.  Krodok’ system is backed by a national law firm and has been set up to be the cheapest protection that your client never needs.  It takes five minutes to process and protects your client’s investment for the life of the business.  The process does not have any subscription and is pay-as-you-use and can be accessed at www.krodok.com.au.  

It is essential that this protection is put in place as soon as possible for your clients with a loan balance owing to their owners before it gets too late, which can be very sudden. 

For help registering your client’s loan interests, contact Matthew Kelly at krodok by email at inquiries@krodok.com.au or speak with Riad Tayeh at dVT Group on (02) 9633 3333, email at mail@dvtgroup.com.au.

dVT Group is a business advisory firm that specialises in business turnaround, insolvency (both corporate and personal), business valuations and business strategy support.

Krodok is a digital tool designed for you. If you have invested in your company and want to secure your future, you need krodok. It automatically generates legally-enforceable documents that raises you to being a first-ranking creditor of your business without the fuss or expense of dealing with lawyers.

By Matthew Kelly & Riad Tayeh
August 2024