What Does ‘Secured Lending’ Actually Mean for Investors?

The word "secured" appears frequently in private credit fund marketing. But what does it actually mean — and how does it protect investor capital in practice?

The Core Concept

When Capital Connect lends to a borrower, we require that borrower to provide identifiable assets as security against the loan. Before a single dollar is drawn down, we register a legal charge over those assets through the Personal Property Securities Register (PPSR) or, in the case of property, a mortgage registered on the title.

This registration is critical. It means that if a borrower defaults — fails to repay when the loan matures — Capital Connect has enforceable legal rights over the secured assets. We can appoint a receiver, take possession, and realise the assets to recover the outstanding loan balance.

In plain terms: there is something real behind the loan, and we have documented legal rights over it.

What We Accept as Security

Different loans are secured against different asset types, depending on the borrower's business:

• Business equipment and vehicles: registered charges over identifiable plant, machinery, or fleet assets
• Trade receivables: assignment of amounts owed by the borrower's customers — effectively, the borrower's debtors book
• Inventory: goods held by the borrower for sale or use in production
• Property: registered first or second mortgage over commercial or residential real estate
• General security agreements: a broad charge over all present and future assets of the business

In many cases we combine multiple layers of security — for example, a general security agreement over the business plus a personal guarantee from the director — to strengthen the collateral position.

Loan-to-Value Ratio — The Buffer

The most important number in secured lending is not the interest rate — it is the loan-to-value ratio (LVR).

LVR measures the loan amount as a percentage of the assessed collateral value. At Capital Connect, our maximum LVR is 70% — meaning the collateral must be worth at least 43% more than the loan balance at the time of origination.

This buffer matters because asset values are not static. A business that encounters difficulty may see the value of its equipment or receivables decline. A 70% LVR means collateral can fall significantly in value before investor capital is at risk.

The Exit Question

Before approving any loan, we ask one question above all others: how does this borrower repay?

Not how they plan to — how they actually will. The repayment pathway must be specific and credible. It might be refinancing with a bank at maturity, proceeds from an asset sale, collection of outstanding receivables, or documented operating cash flow.

If we cannot identify a clear and credible exit, we do not lend. This single discipline, applied consistently across 1,200+ transactions, has meant that Capital Connect has not lost investor capital across its lending history.

What Security Does Not Guarantee

It is important to be direct: security reduces risk — it does not eliminate it. Collateral values can fall below the loan balance in a severe downturn. Enforcement can be delayed. Receivers can encounter unexpected complications.

Our 70% maximum LVR, conservative borrower selection, and active portfolio monitoring are designed to manage these risks — but no investment is without risk and investors should read the full risk disclosure in the relevant Information Memorandum before investing.

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This article is general information only and does not constitute financial advice. The secured lending mechanics described apply across Capital Connect's lending activities, including both Capital Connect No.1 LP (available to wholesale investors participating in the Active Investor Plus visa programme) and Capital Connect No.2 LP (available to eligible New Zealand wholesale investors). Investment eligibility criteria differ between the two funds. Independent legal, financial and tax advice should be obtained before making any investment decision.