Quick answer
A home equity business loan uses the value in your home, above what you still owe, as security for money your business needs. You can access it through a top-up or split on your existing home loan, a separate line of credit, a second mortgage behind your current lender, a short-term caveat loan or a full refinance. Approval odds, speed and cost differ sharply between these structures, and your home is at risk if the loan isn't repaid.
Key points
- Five main structures, from a bank top-up to a short-term caveat loan, each suiting a different need
- Property security usually means larger amounts and lower total cost than unsecured business lending
- Tax deductibility generally follows what the money is used for, so keep business borrowings separate
- A business purpose declaration is serious paperwork, not a formality
- Any co-owner of the home must agree, and will usually need independent legal advice
- Security
- Your home (residential property)
- Enquiries we take
- $20k to $5m (property-secured)
- Structures
- Top-up, split, LOC, 2nd mortgage, caveat
- Purpose
- Business purposes only
For many owners, the family home is the most valuable thing they have, and the equity in it is the cheapest business money they can reach. It’s also the asset they’d least like to lose. Both facts deserve equal weight before you sign anything. This page lays out the five ways to turn home equity into business funding, how each one is assessed, and the paperwork and tax details that catch people out.
How much equity can you actually use?
Usable equity is not the same as the gap between your home’s value and your mortgage. Lenders apply a maximum loan-to-value ratio (LVR), then subtract what’s already owed.
A quick example: your home is valued at $1.1m and you owe $480k. If a lender’s ceiling were 80% for residential property, total borrowing could reach $880k, leaving up to $400k available, before the lender considers servicing, the purpose and your exit. Our property equity calculator runs this for your own figures.
The five structures, side by side
| Structure | Mechanics | Usually suits |
|---|---|---|
| Top-up or split with your current lender | Increase your home loan, ideally into a separate split used only for business | Longer-term needs where you meet bank servicing rules |
| Equity line of credit | A revolving limit secured on the home, drawn as needed | Ongoing working capital with good discipline |
| Second mortgage | A new loan registered behind your existing mortgage, which stays put | Keeping a cheap first loan while raising business funds |
| Caveat loan | Short-term funds secured by a caveat on your title | Urgent needs with a clear exit within months |
| Refinance as a first mortgage business loan | Replace the existing mortgage with one larger loan | Consolidating and raising funds in one step |
The bank route is usually cheapest when you qualify, and if your bank offers a top-up on reasonable terms, take it seriously. Where the bank’s servicing calculation, your credit file or your business’s trading history gets in the way, non-bank and private lenders fill the gap.
What lenders assess
| Lender focus | Why it matters |
|---|---|
| Value and existing debt | Sets the maximum available under the lender’s LVR |
| Purpose | Must be a genuine business use, documented and believable |
| Servicing | Banks test your income closely; private lenders weigh the exit instead |
| Exit | For short-term structures, how the loan will be cleared (sale, refinance, receivables) |
| Ownership | Every registered owner must sign the mortgage |
| Credit history | Important to banks; considered in context by many private lenders |
The tax detail that matters
The ATO’s general approach is that deductibility of interest follows the use of the money, not the security. Interest on borrowings used to earn business income is generally deductible, whatever property sits behind the loan.
The trap is mixing. If business funds and private spending share one loan account, or you redraw for a holiday from a loan you use for business, splitting the interest between deductible and private use becomes painful, and part of the deduction may disappear. A separate loan or split used only for business keeps the records clean. Settle the structure with your accountant before the first drawdown rather than when the tax return is due.
Already know how much equity you hold and what you need it for? Send us a quick enquiry and we’ll talk through the structures that fit.
Business purpose declarations and co-owners
When you borrow against your home for business, the lender will ask you to sign a business purpose declaration. Under the National Credit Code, a loan wholly or predominantly for business purposes sits outside the consumer credit rules. The declaration is not a formality: where the lender was aware, or ought reasonably to have found out, that the money was really for personal use, the declaration can be ineffective. Be precise about how every dollar will be used.
If your spouse or partner co-owns the home but isn’t in the business, they’ll sign as a mortgagor or guarantor. Most lenders require them to get independent legal advice first, so they understand they’re putting their share of the home behind a business debt. Build a few days into your timeline for that step.
What does it cost?
A top-up with your existing bank may involve little more than a valuation and some documentation. A second mortgage or caveat loan from a private lender will cost more, with establishment fees, legal fees, valuation and higher ongoing interest, priced for speed and flexibility. Some private loans offer prepaid interest, where several months of interest come out of the advance so there are no early repayments. That lowers the cash you actually receive.
Compare offers on the total dollars repayable over the period you’ll realistically hold the loan, not just the monthly figure.
Pros and cons of using home equity
Pros: larger amounts than unsecured lending, generally lower total cost, longer terms available through banks, and fast short-term options when timing is tight.
Cons: your home is on the line, co-owners must agree, and a business downturn becomes a household problem. Our guide on the risks of using your home as business security walks through how to limit that exposure.
Lenders that specialise in this
Two of our own lenders lend against residential property for business purposes:
- HomeSec Business Finance offers caveat loans and first and second mortgage business loans from $20k to $5m, as set out in our HomeSec Business Finance profile.
- EquityTap provides short-term facilities from $50k to $5m over one to twelve months; see the EquityTap profile.
If you’d rather keep your home out of it, compare home equity vs commercial property as security or look at unsecured business loans sized on turnover.
Thinking about putting your home behind the business?
It’s a decision worth making with clear numbers in front of you. We help owners weigh up which structure fits their equity, their timeline and their tolerance for risk, and when a bank top-up is the smarter call, we’ll say so.
The enquiry is a one-minute form, and your credit score isn’t touched by sending it. Your details don’t get passed around the market; one specialist reads the enquiry and phones you personally. Please describe the property, what you owe and what the funds are for accurately, so the option we suggest first is one that genuinely suits you.
Frequently asked questions
Can I use my home equity to fund my business?
Yes. Banks, non-banks and private lenders all lend for business purposes against residential property. The amount depends on your home's value, what's already owed on it, the lender's maximum loan-to-value ratio and, for most banks, whether your income can service the extra debt.
Is the interest tax deductible if I borrow against my home for my business?
Generally, deductibility depends on what the borrowed money is used for, not what secures it. Interest on funds used to earn business income is usually deductible, while redraws for private spending can taint a loan. Keep business borrowings in a separate loan or split and check with your accountant.
Do I need my current lender's permission for a second mortgage?
Usually a second mortgage needs the first lender's consent, because it is registered behind them on the title. A caveat loan can often be arranged without that consent, which is one reason it's faster, though your existing loan terms may restrict further borrowing.
What is a business purpose declaration?
A signed statement that the loan will be used wholly or predominantly for business purposes. It takes the loan outside the consumer credit rules, so it must be true. If a lender knew or should have known the money was really for personal use, the declaration can be ineffective.
Can I borrow against my home if my bank has declined my business loan?
Often, yes. Non-bank and private lenders assess property-secured loans mainly on equity and the plan to repay, so a declined bank application, a short trading history or a credit blemish doesn't automatically rule you out.
What happens to my home if the business can't repay?
The lender can enforce its security, which can ultimately mean selling the home to recover the debt. That's why it matters to borrow only what the business needs, choose a term that fits a realistic repayment plan and talk to the lender early if trouble looms.