How to borrow against property for your business, in seven decisions

Property is the strongest card most business owners hold. A house, an investment unit, a factory or a block of land with spare equity can turn a hard “no” from an unsecured lender into a straightforward approval, and usually at a lower total cost. But borrowing against real estate involves more moving parts than a card swipe: other owners, an existing mortgage, a trust deed, a valuer and a land registry all have a say.

This guide walks through those parts as seven decisions, in the order a lender will meet them. Get them right on paper first and the loan itself tends to move quickly.

Decision 1: whose property is it, legally?

Start with the title, not the valuation. The lender takes security from whoever is registered as owner, and every one of those owners has to sign.

That’s simple when you own the property in your own name and the borrower is you or your company. It gets more involved in four common setups:

• Joint owners. A spouse, parent or business partner on title must sign the mortgage or caveat documents too. If they aren’t part of the business, most lenders will want a solicitor’s certificate confirming they had independent legal advice before signing. Book that appointment early; it’s often the slowest step.
• A family trust. The trustee (often a company) owns the property, so the trustee signs. The lender will read the trust deed and every variation to confirm the trustee can borrow, give security and guarantee someone else’s debts. If the deed lacks any of those powers, a deed of variation may be needed before settlement.
• A company that isn’t the borrower. If one company owns the building and another runs the business, the property company typically gives a guarantee and security for the operating company’s loan.
• A self-managed super fund. Generally a dead end. Super law prevents an SMSF trustee from giving a charge over fund assets for someone else’s borrowing, so SMSF-held property can’t normally secure your business loan.

Order a current title search, for a modest fee, from your state’s land registry (or ask your conveyancer). It shows every owner, every existing mortgage and any caveats already lodged, which is exactly what the lender’s solicitor will look at.

Decision 2: how much usable equity is really there?

Usable equity is the room a lender will let you borrow into. It isn’t the same as the gap between your estimate of value and your loan balance.

The calculation lenders run is: valuation × their maximum loan-to-value ratio (LVR) − all debt already secured on the property.

Property type	Common maximum combined LVR	Why
Residential house or unit in a metro area	Around 80%	Easy to value and sell
Commercial or industrial	Around 65% to 70%	Thinner buyer pool, lease-dependent value
Rural or vacant land	Often lower again, case by case	Longer and less predictable sale times

Those are typical figures, not rules. Our partner HomeSec Business Finance publishes 80% for residential and 70% for commercial, for example, while other private and non-bank lenders publish different ceilings.

Three things shrink the number owners expect. The valuer’s figure often lands below the agent’s appraisal. Fees and any prepaid or capitalised interest are usually counted inside the LVR. And a redraw or offset on your home loan counts at its limit, not the balance. The property equity calculator and our explainer on how to calculate usable equity walk through it with your own numbers.

Decision 3: first mortgage, second mortgage or caveat?

With room confirmed, decide what rank the incoming lender takes.

• First mortgage (refinance). Your existing loan is repaid in full and the incoming lender steps into first place. It suits larger, longer facilities and often costs the least per year, but it’s the slowest route because the current lender must discharge. See first mortgage business loans.
• Second mortgage. A new mortgage is registered behind the one you already have. You keep your home loan and its pricing, and add a business facility on top. Read how second mortgages get approved for the lender’s checklist.
• Caveat loan. Instead of registering a mortgage, the lender records a caveat to warn off other dealings. Lighter paperwork, faster settlement, shorter terms and a higher monthly cost. Our guide to how caveat loans get approved covers the detail.

A useful rule of thumb: the shorter the need and the tighter the deadline, the further down that list you’ll look. A two-month tax gap rarely justifies refinancing the whole home loan; a five-year expansion rarely suits a caveat.

Decision 4: does the purpose make it a business loan?

This matters more than many owners realise. When the money is wholly or mostly for a business use, the National Credit Code usually doesn’t apply, even when it’s secured by your home. “Predominantly” is read as more than half.

So lenders will ask you to sign a business purpose declaration in the prescribed form before you sign the loan contract. Two things follow from that:

1. Be specific about the purpose. “Pay the ATO”, “buy the excavator”, “settle the purchase of the business next door” are all clear. A loan used mostly for a holiday or a home renovation isn’t a business loan, whatever form is signed, and the declaration won’t hold if the lender knew or should have known.
2. Expect fewer consumer protections. Business loans don’t come with the same hardship and responsible-lending framework as a home loan. That’s a reason to read the contract carefully and to borrow for a plan you’re confident in, rather than a reason to avoid property security.

If you’re weighing your home against a commercial property you also own, our home equity vs commercial property comparison sets out the trade-offs.

Curious what your own title might carry? Send us the address and the figure you need. A minute of typing, and no credit enquiry is recorded.

Decision 5: what will the valuer say?

The lender orders the valuation; you usually pay for it. There are three common types:

• Desktop or automated valuation using sales data, often enough for a smaller caveat loan on a standard suburban house.
• Kerbside (drive-by) valuation, where the valuer views the outside only.
• Full valuation with an internal inspection, standard for larger loans, commercial property and anything unusual.

You can help the valuer get it right. Give them access quickly, point out recent improvements with receipts, and for commercial property, supply the lease, the rent roll and outgoings. Vacancy, a short remaining lease or a single-tenant building will be reflected in the figure. Our guide to how valuations work for business loans goes further.

Decision 6: what’s the way out?

Property lenders care far less about your credit score than banks do. What they care about is how the loan ends.

For a long first or second mortgage, the exit is ongoing cash flow: can monthly trading cover repayments? For a short caveat or bridging loan, it’s a specific event, for instance selling a property, refinancing once two years of financials are lodged, a large contract payment, a tax refund. Write that sentence down before you apply, along with a backup. If you’re counting on a bank refinance six months out, know what the bank will need to see by then.

Decision 7: what will it cost, all in?

We never quote rates here, and it’s more useful to think in dollars anyway. On top of interest, budget for:

• an establishment or application fee
• the valuer’s bill
• the lender’s legal costs, plus your own solicitor if third-party owners need advice
• land registry charges at the start (registration) and the end (discharge or withdrawal)
• any line fee, broker fee or early repayment cost spelled out in the offer

Ask each lender for the total dollar cost over the term you actually expect to use the money. Then compare offers side by side in the loan cost comparison calculator.

A worked example: two owners, one shared house

This is an illustrative case. Sam runs a small electrical contracting company in Newcastle and needs $180k to buy two vans and fund materials for a council contract that pays in 75 days. The family home is worth about $1.05m, held jointly with Sam’s partner, who works as a teacher, with $520k owing to a major bank.

• Usable equity at 80%: $1.05m × 0.8 = $840k, less $520k = $320k. There’s room.
• Ownership: Sam’s partner is on title and outside the business, so independent legal advice is booked in week one.
• Position: Refinancing the whole home loan would mean giving up a competitive rate and waiting weeks. The van purchase suits a longer facility, while the materials need only 75 days. Sam chooses a second mortgage for the vans over three years and pays for materials from progress claims instead of borrowing more.
• Purpose: Every dollar is for the business, so the business purpose declaration is accurate.
• Valuation: A kerbside valuation comes back at $1.01m. The equity still clears comfortably.

The bank’s mortgage, as it happens, requires notice of further borrowing, so Sam’s lender writes to the bank as part of settlement. Nobody is surprised, and the vans are on the road within a fortnight.

Mistakes that cost owners time

• Assuming a spouse will sign without questions. Explain early, share the numbers and leave time for their legal advice.
• Forgetting the trust deed. Locate the signed original, plus each amendment, today, not on the day the lender’s solicitor asks.
• Borrowing to the ceiling. Room to 80% doesn’t mean you should use it. Leave a buffer for a weaker valuation and for next year.
• Choosing on speed alone. A caveat that rolls over three times can cost more than the bank loan you were too impatient to wait for. Our guide to protecting your home when borrowing for business covers the safeguards.

Banks remain an excellent first stop when you fit their criteria; their secured business lending is often the cheapest money available. If the answer there was no, or the timing doesn’t work, private and non-bank lenders that lend on equity are the natural next step. Our page on business loans against your home lists the options.

Your property, your plan: let’s see what fits

Owners who hold real estate with spare equity and a genuine business use for the money start from a position of strength. That holds even after a bank decline, and even with a deadline a fortnight away. The questions above are the ones we’ll ask anyway, so having rough answers ready puts you ahead.

Filling in our form is a sixty-second job, and no credit search runs against you or your company when you send it. We don’t forward your answers to a queue of lenders, so the phone won’t start ringing from strangers. Someone on our team studies the property, the purpose and the timing, then phones you personally. Give us honest figures for the value, the current mortgage and the sum required, and the first structure we suggest is far more likely to be the one that settles.

Find out what your property can support →