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A Hypothecation Agreement lets you pledge assets as security for a loan while keeping possession of them. It's commonly used in Australian financial markets when borrowers need to secure funding but want to continue using their assets, like inventory or equipment, for business operations.

Under Australian secured lending laws, these agreements create a security interest without transferring ownership. Banks and lenders often require hypothecation when extending business loans or trade finance. The borrower maintains day-to-day control of the assets but can't sell or transfer them until the loan is repaid. If default occurs, the lender can claim the hypothecated assets through standard enforcement procedures.

Use a Hypothecation Agreement when you need to secure business funding but can't afford to give up control of your assets. This arrangement works particularly well for Australian businesses that need working capital while maintaining their daily operations, like manufacturers who require expensive equipment or retailers with valuable inventory.

The agreement becomes essential when seeking trade finance, expanding operations, or managing seasonal cash flow needs. It offers more flexibility than traditional security arrangements, especially for businesses in growth phases. Australian lenders often prefer hypothecation for revolving credit facilities or short-term loans where the borrower's continued use of assets is crucial for generating revenue.

• General Business Hypothecation: Used for standard commercial loans, covering business assets like inventory and equipment while allowing continued business operations
• Stock Market Hypothecation: Specifically for trading accounts, allowing investors to borrow against their securities portfolio
• Trade Finance Hypothecation: Tailored for import-export businesses, covering goods in transit and warehouse inventory
• Fixed Asset Hypothecation: Focuses on specific high-value equipment or machinery, common in manufacturing and construction sectors
• Revolving Hypothecation: Enables flexible borrowing limits based on changing asset values, popular with retail businesses

• Financial Institutions: Banks, credit unions, and lenders who accept hypothecated assets as security for loans or credit facilities
• Business Owners: Entrepreneurs and companies seeking finance while retaining operational use of their assets
• Corporate Lawyers: Draft and review Hypothecation Agreements to ensure legal compliance and protect client interests
• Finance Brokers: Arrange hypothecation facilities between lenders and borrowers, especially for trade finance
• Asset Valuers: Provide independent assessments of hypothecated assets to establish borrowing limits

• Asset Details: List all assets to be hypothecated, including descriptions, serial numbers, and current market values
• Loan Terms: Document the loan amount, interest rates, repayment schedule, and duration of the agreement
• Party Information: Gather full legal names, ACN/ABN numbers, and registered addresses of all parties
• Usage Rights: Specify how the borrower can use the hypothecated assets during the loan term
• Security Interest: Register the security interest on the Personal Property Securities Register (PPSR)
• Default Conditions: Clear terms outlining what constitutes default and enforcement procedures

• Party Details: Full legal names, addresses, and ACN/ABN of lender and borrower
• Asset Description: Detailed identification of hypothecated assets, including values and locations
• Security Terms: Clear description of the security interest being created and PPSR registration details
• Borrower Rights: Permitted use and maintenance obligations for hypothecated assets
• Default Provisions: Specific events of default and enforcement procedures
• Governing Law: Explicit statement that Australian law governs the agreement
• Execution Block: Proper signing sections for all parties with witness requirements

A Hypothecation Agreement differs significantly from a Convertible Agreement. While both involve securing financial arrangements, they serve distinct purposes in Australian business transactions.

• Asset Control: Hypothecation lets borrowers keep using their assets while pledging them as security; convertible agreements don't involve asset possession at all
• Purpose: Hypothecation secures traditional loans with physical assets, while convertible agreements typically involve future equity conversion of debt
• Risk Profile: Hypothecation carries direct asset risk for both parties; convertible agreements focus on investment potential and company valuation
• Legal Structure: Hypothecation creates an immediate security interest requiring PPSR registration; convertible agreements establish future rights to company ownership
• Common Users: Hypothecation suits established businesses needing operational capital; convertible agreements target startups seeking investment