Quick answer
Banks lend against the 'lending value' of your security, which is often well below its market value, so the shortfall can be bigger than it looks. You can close it by limiting a guarantor's exposure, splitting the loan so equipment secures itself, borrowing the gap from a second mortgage or unsecured lender, or using invoice finance. Some non-bank lenders also accept less security, at a higher total cost.
Key points
- Banks apply a lending ratio to each kind of security, so $1m of property may support far less than $1m of lending
- Splitting the request (equipment on equipment finance, the rest with the bank) often removes the shortfall entirely
- A guarantee under the Banking Code can be limited to a set amount, which makes family support far less risky
- Second mortgage and unsecured lenders can fund the gap while the bank keeps the main loan
- Each extra layer of debt adds cost, so size the gap precisely before borrowing it
The bank likes the business, the numbers work, and then the credit manager says the security “doesn’t quite get there”. Maybe they want your home as well as the shop. Maybe they want a parent’s house. Maybe there’s simply no more property to offer.
This is one of the most fixable reasons a bank holds back, because it’s a gap with a number on it. Find the number, and you can usually find a way to fill it. Banks are generally the cheapest lenders around, so the best result is often keeping the bank loan and solving only the shortfall elsewhere.
Why does the bank need so much?
Banks don’t lend against what your property is worth. They lend against its lending value: the bank’s valuation multiplied by a ratio the bank sets for that kind of asset. The ratio reflects how easily the bank could sell the asset, and for how much, if things went wrong.
Each bank sets its own ratios, and they change with policy, location and loan size. The table below is purely illustrative, to show how quickly a gap opens up. It isn’t any particular bank’s policy.
| Security offered | Valuation | Illustrative ratio | Counts towards the loan |
|---|---|---|---|
| Owner’s home (after existing mortgage of $450k) | $950k | 80% | $760k less $450k owing = $310k |
| Small commercial unit the business occupies | $600k | 65% | $390k |
| Plant and equipment under a GSA | $250k | Low or nil for many banks | little or nothing |
| Total lending value | about $700k |
If the request is $850k, the bank sees a security shortfall of around $150k, even though the owner holds well over $1.5m of assets. That’s why “but we’ve got plenty of assets” doesn’t move the decision. Our LVR calculator helps you work out where your own property sits.
Six ways to close the gap
1. Shrink what the bank is securing
Often the request bundles things a bank doesn’t need to secure with property. Equipment, vehicles and machinery can go through equipment finance or a chattel mortgage, where the asset is the security. Take $200k of equipment out of an $850k request and the bank’s shortfall in the example above disappears.
2. Ask what a smaller loan would look like
Ask the bank directly: “What can you do with the security I have?” Then fund the difference separately. A bank’s partial yes is usually worth more than a non-bank’s full yes, because the bulk of the money stays cheap. See bank offered less than you asked for.
3. Use a limited guarantee
When a relative offers to back you, their guarantee doesn’t have to cover everything. The Banking Code of Practice allows a guarantor’s exposure to be capped, either at a dollar figure or at the worth of a nominated asset. The bank must give the guarantor key documents, including the proposed loan contract, and generally can’t accept the guarantee until the third day after they receive them. Where a guarantor’s home is security, the Code says the bank will generally enforce against the borrower’s own security first. Our page on business loans with a guarantor covers the conversation to have.
4. Borrow the gap against property equity elsewhere
A second mortgage lender can lend against equity left over after the bank’s first mortgage, with a lower lending value threshold than many banks would apply to a second position. A caveat loan does a similar job faster and for shorter terms. Check the numbers on the second mortgage calculator.
5. Fund the gap unsecured
Where the missing piece is small and trading is steady, an unsecured business loan can plug it. These typically run from $5k to $500k, with the limit worked out from deposits and turnover rather than property. Tell the bank, because it will usually want to know about other repayments when it tests serviceability.
6. Turn receivables into security
For businesses with trade debtors, invoice finance advances against unpaid invoices and doesn’t rely on property at all. It’s especially useful when the loan is really funding working capital rather than a fixed asset.
Want a hand working out which of these fits? Tell us the shortfall and the security you hold. Asking costs nothing and involves no credit check.
A worked example
This one is illustrative. A Geelong electrical contractor wants $850k: $600k to buy the workshop it currently rents and $250k for two vans and testing equipment. The bank’s lending values add up to about $700k from the workshop itself and some equity in the owner’s home. The bank asks for the owner’s parents to guarantee the rest with their house.
Instead, the owner restructures:
- The vans and equipment, $250k, go on equipment finance secured by the assets.
- The bank funds the $600k workshop purchase against the workshop and a limited slice of home equity, well inside its ratios.
- The parents aren’t asked to sign anything.
Total repayments are slightly higher than one bank loan would have been. In exchange, the parents’ home stays out of it and the purchase settles on time.
What should you avoid?
- Over-securing. Offering everything you own to get a slightly better deal can tie up property you’ll need for the next loan. Keep some equity free.
- Cross-securing without understanding it. If the bank holds one mortgage across several properties, selling one later may need its consent. Ask how cross-collateralisation will work before you sign.
- Asking family for an unlimited guarantee. A limited one may be all the bank actually needs.
- Stacking expensive debt to fill a gap that could be removed. Try splitting the purchase before borrowing the shortfall.
- Forgetting the exit. If the gap is funded short term, know how and when you’ll refinance it into the bank loan.
Short on security? Let’s find the shape that works
Security shortfalls are among the most solvable problems we see. Very often the answer is a different structure, not a different bank, and occasionally it’s a small top-up alongside the bank’s offer rather than replacing it.
Sixty seconds or so is all the form needs, and your credit history stays unchecked while you’re only exploring. Nothing gets shopped around to dozens of funders: one of our specialists studies the numbers and phones you. Give exact figures for the property you hold, what’s owing on it and what the bank asked for, because those three numbers usually point straight to the right option.
Frequently asked questions
Why does the bank value my property lower than I do?
Two reasons. The bank's valuer may give a more conservative figure than an agent's appraisal, and the bank then applies a lending ratio to that value, so only part of it counts towards the loan. Commercial property, vacant land and specialised buildings usually get lower ratios than a standard house.
Can I offer a family member's property as security?
Yes, through a guarantee supported by a mortgage over their property. Under the Banking Code of Practice the guarantee can be limited to a specific amount, and the bank must give them information and time before they sign. They should get independent legal advice.
Can I get a business loan with no property at all?
Yes. Unsecured business loans are sized on turnover and bank statements, typically $5k to $500k. Equipment finance uses the asset as security, and invoice finance uses your unpaid invoices. Larger amounts without property are harder but not impossible.
Will the bank let another lender take a second mortgage behind it?
Sometimes. Many second mortgage lenders ask the first mortgagee for consent, and some loan contracts restrict further borrowing. A caveat loan avoids registration but is shorter and costs more. Check your existing mortgage terms before you plan around it.
What's a general security agreement and does it count?
A GSA gives the lender security over the business's assets, registered on the PPSR. Banks usually take one alongside property, but on its own it rarely carries much lending value for a bank. Some non-bank lenders give it more weight.
Is it risky to use my home as security for the business?
It can be. If the business can't repay, the lender can ultimately enforce against the home. Keep the secured amount as small as practical, understand the exit, and get advice before you sign.