Finance for a settlement shortfall

The call usually comes from the conveyancer, about ten days out. The valuation came in light, or the lender has reduced the loan, or someone has finally added up the GST. Suddenly there’s a number on the table that nobody planned for and a settlement date that won’t move.

It feels like a disaster. Usually, though, a shortfall is a fixable sum with a deadline attached. The two things that matter are working out the exact figure and choosing finance that can move within the time left.

Where do settlement shortfalls come from?

In our experience, most shortfalls trace back to one of five causes. Identifying which one you’re dealing with shapes the fix.

Cause	What happens	Typical fix
Low valuation	The bank’s valuation lands under the contract price, so a loan capped at a share of value shrinks	Challenge the valuation with evidence, renegotiate the price, or add security
Lender reduces or withdraws	Credit conditions change, a condition can’t be met, or the approval lapses	Another lender, or short-term funding until the main loan is restored
GST nobody funded	A commercial purchase is taxable rather than a going concern, adding 10% to the cash needed	Short-term funding until the GST credit comes back through the BAS
Duty and adjustments	Transfer duty, council rates, rent or outgoings adjustments come in higher than budgeted	Usually a smaller top-up from cash or a short facility
Withholding at settlement	The buyer must hold back part of the price for the ATO, leaving the seller short	Get the clearance certificate, or fund the gap until the withheld amount is refunded

That last cause catches more sellers than it used to. From 1 January 2025 the withholding regime aimed at foreign resident sellers stopped having a price threshold, and its rate rose to 15%. Unless the seller gives the buyer a valid ATO clearance certificate by settlement, the purchaser has to keep back 15% of the purchase money and remit it to the tax office. Australian resident sellers can get the certificate, but if it isn’t applied for in time, they receive 15% less at settlement than they expected, which can leave the existing mortgage unpaid. The withheld amount is generally recovered through the seller’s tax return, not on the day.

How big is the gap, exactly?

Owners often quote a round figure and then discover a second gap on settlement morning. Work it out from the documents.

If you’re buying:

1. Start with the balance of the price: contract price less the deposit already paid.
2. Add GST if the sale is taxable and not a going concern.
3. Add transfer duty, which in most states is due at or near settlement.
4. Add or subtract the adjustments on the settlement statement (rates, water, rent, outgoings, land tax where applicable).
5. Add the lender’s settlement fees and your own legal costs.
6. Take off whatever net advance the lender has confirmed in writing once its own fees are deducted.
7. Subtract the cash you have cleared and ready.

If you’re selling:

1. Start with the contract price.
2. Subtract any withholding the buyer must make (FRCGW, or GST withholding on new residential premises).
3. Subtract commission, legal costs and adjustments.
4. Compare the result with the lender’s payout figure, including any break costs.

What remains is the shortfall. Add a small margin, because payout figures and adjustments move by a few hundred dollars as settlement approaches. Our settlement statement glossary entry explains the common line items.

How quickly do you need the money?

Very often, faster than a bank can move. Most standard contracts let the other party charge interest on the unpaid balance for every day settlement is late, at a rate set in the contract. In NSW, once the settlement date passes, the other side can serve a notice to complete, commonly allowing around 14 days. If settlement doesn’t happen within that notice period, the contract can be terminated and the deposit forfeited, with a claim for any loss on resale on top. Each state’s contracts differ, so ask your conveyancer for the real dates.

The practical rule: aim to fund the gap before the settlement date, not after the notice arrives.

If the date is already close, tell us the figure and the deadline. The form is brief, your credit file stays closed while you ask, and a specialist will be honest about what’s achievable before the date.

Which finance can close a shortfall?

Banks should be your first conversation if there’s time. Your own lender may lift the loan with a review of the valuation, extra security or a guarantor, and that’s usually the cheapest outcome. If the bank can’t help, or can’t help by the date, these are the common alternatives:

Option	Security	Speed	Best for
Caveat loan	Caveat over other property you own	Often a day or two for straightforward deals	Smaller gaps with a clear exit inside months
Second mortgage	Registered behind the existing mortgage on other property	A few days to a week or two	Larger gaps or longer terms
Bridging finance	The property being bought, sold, or both	Days to a couple of weeks	When a sale elsewhere will repay the gap
Private first mortgage	The purchase property itself	Days	When the main lender drops out entirely
Vendor finance or deferred balance	Agreed with the seller	As fast as the contract variation	Sellers keen to complete, often in commercial deals
Unsecured business loan	None, usually a director guarantee	Within a day or two	Modest gaps, typically up to $500k, for trading businesses

The property equity calculator helps you see how much usable equity sits in other property before you talk to a lender. Every option above has a different total cost, so ask for the dollar figure across the months you’ll realistically need it.

What’s the exit?

Shortfall finance is short-term by design. Lenders will want to know exactly how it gets repaid, and so should you. Common exits:

• The GST credit. For a taxable commercial purchase, the GST claimed back on the next BAS repays the short-term loan.
• The withholding refund. For a seller caught by FRCGW, the amount comes back once the tax return is processed.
• A refinance. Once a second valuation, a longer track record or updated financials are in place, the gap rolls into a longer-term loan.
• A sale. Another property or asset is already on the market.
• Business cash flow. A known large receipt within a few months.

If none of these applies, the gap probably needs a longer-term solution, such as a second mortgage over several years, rather than a short caveat loan.

Worked example: a warehouse purchase and a low valuation

This is an illustration with simplified numbers. A logistics business in western Sydney agrees to buy a small warehouse for $2.4m plus GST. Its lender has approved a loan of 70% of value.

Two weeks before settlement:

• The valuation comes in at $2.25m, so 70% now means a loan of $1.575m instead of $1.68m, a gap of $105k.
• The seller confirms the property is vacant, so the sale can’t be treated as a going concern, and $240k of GST is payable at settlement.
• Transfer duty and costs are already budgeted.

The real shortfall is about $345k, not the $105k the owners first worried about. Their bank declines to fund the GST portion separately. The owners hold a residential investment property with good equity, so a private lender provides a caveat loan of $350k secured against it, funded four days before settlement.

The exit is clear. The $240k GST credit comes back after the next BAS, and the remaining $110k is cleared six months later when the business refinances with its bank and the warehouse is revalued after a fit-out.

Mistakes that turn a gap into a lost deposit

• Waiting to see if the valuation can be fixed. Challenge it, but line up backup funding at the same time.
• Guessing the figure. A shortfall based on a rough number tends to reappear on settlement day.
• Forgetting the clearance certificate. Sellers should apply well before settlement; the ATO issues most quickly, but not always.
• Ignoring GST on a vacant commercial property. Without leases in place, the going concern exemption usually isn’t available.
• Agreeing to an extension without reading the terms. Penalty interest and the vendor’s costs can add up fast.

Let’s close the gap before the date

A shortfall a week or two out is stressful, but it’s exactly the sort of problem property-backed lenders deal with every day. We see them constantly, from small duty top-ups to large purchases where the bank cut the loan at the last minute.

Starting is simple: the form takes about a minute, and making an enquiry does nothing to your credit score. We keep your details within our own team rather than circulating them, so you won’t be chased by a list of strangers. A specialist goes through your figures and calls you, usually the same day. Give us the exact shortfall, the property you can offer as security and the settlement date, and accurate numbers will let us find a workable option straight away.

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