Equipment finance, invoice funding and a loan: who ranks first?

Remixing your funding means using the right piece for each part of a goal: equipment finance for the machine, invoice funding for the contract, a line of credit for timing, property security for the big long-term piece. It’s a smarter structure than one oversized loan. But it introduces a question that a single-lender setup never has to answer: when several funders have claims on your business, who gets paid first if something goes wrong?

That question — priority — shapes whether a new funder will lend at all, what they’ll ask for, and how long it takes to get a deal done. Understanding it before you build your stack saves weeks of back-and-forth and avoids the frustrating moment when a facility stalls because another lender won’t sign a consent.

What is security, in plain terms?

Security is a lender’s right to take and sell a particular asset if a loan isn’t repaid. In New Zealand there are two broad worlds of security:

• Land. Mortgages and caveats over residential or commercial property, recorded on the land title.
• Personal property. Almost everything else — vehicles, machinery, equipment, stock, debtors (money owed to you), intellectual property — with security interests recorded on the Personal Property Securities Register (PPSR).

Most of the priority puzzles in a funding mix happen in the second world.

How does the PPSR decide who ranks first?

The Companies Office describes the PPSR as a digital register that records claims to personal property. When a lender or supplier takes security over personal property, it usually registers a financing statement with details of the debtor, the collateral and the secured party. The Companies Office states that registering gives you priority over creditors who haven’t registered an interest, and over those who register after you.

So the starting rule is simple: register first, rank first. A financing statement can be registered for up to five years and then renewed or discharged; if neither happens, it expires on the date given.

There are refinements in the law — for example, special rules that can give a supplier or financier of a specific asset priority over that asset even if a general lender registered earlier — and the parties can always agree a different order between themselves. The details are a job for your lawyer. For planning a funding mix, the key is knowing what’s already registered, and what each new funder will expect.

What is a general security agreement, and why does it matter?

Many business lenders take a general security agreement (GSA) — security over all of the business’s present and after-acquired personal property. It’s registered on the PPSR and, by design, it covers almost everything: equipment, vehicles, stock, debtors and assets you buy later.

That’s convenient for the GSA lender and complicated for everyone else. If you later want:

• equipment finance on a new machine, the equipment financier will want first claim over that machine;
• invoice funding on your debtors, the invoice funder will want first claim over those invoices;
• asset refinance on vehicles you already own, the new funder will want those vehicles;

then the existing GSA lender’s interest may already cover those assets. The new funder will usually ask for one of three things:

1. a consent from the GSA lender to the new facility;
2. a priority agreement (sometimes called a deed of priority or subordination) confirming the new funder ranks first over the specific assets;
3. a release of the specific assets from the GSA.

None of these is unusual, but each takes time and depends on the existing lender’s cooperation.

Where do suppliers fit in?

Suppliers are secured creditors more often than owners realise. Many New Zealand terms of trade include a clause giving the supplier a security interest in the goods it supplies until they’re paid for — sometimes extending to the proceeds of selling them. Suppliers commonly register those interests on the PPSR.

This matters when you mix funding in two ways:

• Stock as security. A lender looking at your stock as part of its security will discount stock that suppliers have registered claims over.
• Supplier terms as a funding piece. When you push supplier trade credit further — bigger limits, longer terms — you’re increasing the amount of stock subject to supplier claims.

Neither is a problem in itself. It just needs to be visible in your funding plan.

How do common combinations play out?

Combination	Typical priority picture	What to sort out
Bank or lender with a GSA + new equipment finance	Equipment financier wants first claim over the new asset	Consent or priority agreement from the GSA lender
GSA lender + invoice funding	Invoice funder wants first claim over debtors	Priority agreement or release of receivables
Equipment finance + asset refinance on other gear	Separate assets, separate registrations	Check each asset is free of existing interests
Supplier retention of title + lender taking stock as security	Supplier may rank first over its goods	Lender discounts affected stock
Property-secured loan + any of the above	Land security sits on the title, separate from the PPSR	Check whether the property lender also took a GSA
Unsecured facility + secured pieces	Unsecured lender ranks behind secured creditors	Disclose all secured facilities

Illustrative stack: a manufacturer adds two pieces

Illustrative only; describes no real business.

A Palmerston North manufacturer has a business loan from its main lender, secured by a GSA registered several years ago. It now wants:

• equipment finance for a new forklift and racking; and
• invoice funding to support a big new distribution contract.

What happens:

1. The equipment financier searches the PPSR, sees the GSA, and asks the main lender for a consent and priority over the forklift and racking. The main lender agrees, because the new assets weren’t part of its original lending decision.
2. The invoice funder also sees the GSA. Debtors are a bigger deal to the main lender, which had relied partly on them. After discussion, the main lender agrees to subordinate its interest in debtors in exchange for a reduction in the loan balance from the first invoice funding advance.
3. Two of the manufacturer’s suppliers have registered retention-of-title interests over raw materials. Neither funder is concerned, since they’re relying on equipment and debtors rather than stock.

The stack works — but only because priority was sorted before any facility was signed. Had the manufacturer signed the invoice funding agreement first, the funder couldn’t have advanced money until the consent came through. If you’re planning something similar, a real person can walk through the structure with you before anything is signed.

Where does property security fit?

Mortgages and caveats over land are recorded on the title, not on the PPSR, so they sit in a separate lane. A property-secured business loan from $20,000 to $5,000,000 can use a first mortgage, second mortgage or caveat-style security. Between property lenders, the first mortgage generally ranks ahead of a second mortgage, and the documents between them set out how they interact.

Two things to watch:

• Some property lenders also take a GSA over the business. That brings them into the PPSR picture too. Ask.
• A second mortgage needs the first mortgagee’s position considered. Some first mortgage documents restrict further borrowing against the property.

How do you keep a stack clean?

A practical checklist before adding any secured piece:

1. Search the PPSR for financing statements registered against your business, and against you personally if you’ve given guarantees with security.
2. List every secured facility: lender, type of security, assets covered, registration date and expiry.
3. Check your existing agreements for clauses about further borrowing, negative pledges (promises not to grant more security) and cross-default.
4. Talk to existing lenders early. A consent requested before you apply elsewhere is a courtesy; a consent demanded after you’ve signed is a problem.
5. Keep security specific where you can. Equipment on equipment finance, debtors on invoice funding, property for the big long-term piece — rather than one lender holding everything.
6. Discharge old registrations. Financing statements for loans you’ve repaid should be discharged; ask the secured party to remove them.
7. Get legal advice on any priority agreement or deed of subordination.

Why does priority affect the cost and speed of funding?

Lenders price and approve funding partly on how confident they are of recovering their money. A funder that ranks first over a clear, specific asset can usually move faster and lend more against it than one ranking behind others or sharing a pool of assets. That’s another reason the stack approach works: matching each piece to its own security gives each funder a clean position.

It’s also why tangled security slows everything down. A business with several overlapping GSAs, expired registrations that were never discharged and undocumented supplier claims can spend weeks untangling before any new funding arrives. If your stack has grown that way, consolidating into fewer, cleaner facilities may be worth more than adding another piece. See mixing secured and unsecured funding and ordering your funding sources.

What should you tell a new funder?

Everything they’ll find anyway, upfront:

• every existing facility and its security;
• any supplier terms with retention of title;
• any consents or priority agreements already in place;
• any personal guarantees you’ve given.

A funder who sees a complete, accurate picture in your first conversation can design around it. One who discovers a GSA at the PPSR search stage starts the conversation again — and wonders what else wasn’t mentioned.

Ready to add a piece without the tangle?

Priority sounds technical, but the principle is simple: know who holds what, and sort it out before you sign. When your stack is mapped and you know the piece you need, tell us about the goal and your existing facilities. There’s no credit check to start, your enquiry stays with a real person rather than being spread across a list of lenders, and we’ll talk through a structure that fits around what you already have. Please list existing lenders and security accurately on the form — it’s the fastest way to a clean result.