What is a secured loan?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A secured loan is a loan where the borrower pledges an asset, such as property or machinery, as security for repaying it, while an unsecured loan has no asset pledged against it. Either way, the amount borrowed is money the business owes, so it is recorded as a liability until it has been repaid.
The word secured describes what stands behind the debt, not how it is entered. A secured loan and an unsecured loan each sit in a liability account for the principal still owing, and the interest on each is recorded from the lender's statements. The difference is in the loan documents, which set out any asset offered and the terms attached to it.
When a loan pays for the asset that secures it, such as a vehicle or a machine, the asset and the loan are kept as separate records rather than netted off. The item goes in an asset account at what it cost, and the amount borrowed goes in a liability account. From then on the loan balance falls as principal is repaid, while how the asset is carried in the accounts is a question for your accountant.
When the final repayment is made, the loan account in the books should come down to nil once the last interest charge and any closing fees are entered. The lender's confirmation that the loan has been paid out belongs with the rest of the loan records.
In Australia
business.gov.au's guide to applying for a business loan says loans can be either secured or unsecured. It describes a secured loan as one with collateral or security behind it, and says an unsecured loan puts none of your assets at risk.
Among the loan terms the same guide suggests reading closely is whether security has to be provided. Its glossary notes that fully drawn advances, which are long-term loans, are usually secured, and its funding guide names the frequent need for collateral as one of the drawbacks of debt finance.
Worked example
| Account | Debit (AUD) | Credit (AUD) |
|---|---|---|
| Motor vehicle | 48,000.00 | |
| Bank account (deposit paid) | 8,000.00 | |
| Vehicle loan | 40,000.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording a financed asset at its cost minus the loan, instead of showing the asset and the loan in separate accounts.
- Leaving an unsecured loan out of the liabilities because no asset stands behind it.
- Keeping a paid-out loan open in the books because its final interest charge was never entered.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Apply for a business loan
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Choose your funding
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.