Business loans for trusts: how lenders deal with trustees and trust deeds

Your accountant probably set up the trust years ago for good reasons: flexibility in distributing income, a layer between the business and the family’s assets, a smoother path for succession. It has likely served you well. Then you apply for finance and discover that, to a lender, the trust is less a business and more a stack of documents to verify.

That shouldn’t stop you borrowing. It just means getting the documents in order first.

Who actually borrows: the trust or the trustee?

Legally, a trust is an arrangement under which one party holds property for others. business.gov.au describes the trustee as holding the business “for the benefit of others” and carrying legal responsibility for how it runs. So the trustee signs the loan contract, owns the assets on the trust’s behalf and is the party the lender deals with.

You’ll see this in the documents. The borrower will be named along the lines of “Banksia Holdings Pty Ltd ATF the Banksia Family Trust” (ATF is short for “as trustee for”). That wording matters: it tells everyone the trustee is acting in that capacity and links the loan to the trust’s assets.

The trustee can be:

• A company (corporate trustee), with an ACN and directors of its own. Trading trusts mostly use this structure and the one lenders tend to find easiest.
• One or more individuals, who sign personally as trustees.

Either way, the people behind the trustee usually give personal guarantees. A corporate trustee limits liability in many situations, but lenders close that gap with a director guarantee.

Does your trust deed allow the loan?

Before approving, a lender (or its lawyers) reads the trust deed and every variation since it was signed. They’re checking a short list of things:

1. The deed lets the trustee take on debt and pledge trust assets, including by mortgage or guarantee.
2. The current trustee is properly appointed. If the trustee changed, the deed of appointment or variation must be there.
3. The vesting date is a long way off. Every deed names a date when the trust winds up and its assets pass to beneficiaries. If that date falls inside the loan term, expect questions.
4. The borrowing benefits the trust. A loan for the trust’s business is straightforward; using trust assets to secure someone else’s debt raises more questions.
5. Signing is done in the right capacity, with the right execution for a company.

Most modern deeds give trustees wide powers, so this is usually a formality. The delays come from missing pages, unrecorded trustee changes and deeds nobody can find. Ask your accountant for a full certified copy, with every variation, before you apply.

Already have the deed in hand and a purpose in mind? Tell us about the trust and the loan. It’s a one-minute form, and your credit report stays untouched.

How do lenders read a trust’s income?

Here’s the catch for many trading trusts. A discretionary trust typically distributes its profit to beneficiaries each year, so its own tax return can show little or no taxable income. On its own, that looks like a business that can’t afford a loan.

Lenders know this, so they look across the structure:

What they read	What it tells them
The trust’s tax return and financial statements	Turnover, expenses and net profit before distributions
Distribution statement	How much went to which beneficiary
Beneficiaries’ personal returns	The same income arriving in individuals’ hands, and their other debts
Any corporate beneficiary’s financials	Profits parked in a company, and any amounts the trust still owes it
Business bank statements	Day-to-day conduct and real turnover

The amounts distributed but not yet paid out (often called unpaid present entitlements) can confuse things. To some lenders they look like money owed by the business; to others they’re simply retained profit. Have your accountant explain them in a short note, because a lender left to guess will usually guess conservatively.

The debt service coverage ratio calculator is useful here: it shows whether the trust’s profit before distributions comfortably covers the proposed repayments.

Discretionary trust or unit trust: does it matter?

It can.

• Discretionary (family) trusts are the most common in small business. Lenders usually want guarantees from the trustee’s directors and sometimes from the main beneficiaries.
• Unit trusts have unitholders with fixed shares, often unrelated people or entities. Lenders may want guarantees or consents from each significant unitholder, and will read any unitholders’ agreement as closely as the deed.
• Hybrid trusts mix the two, and lenders look hardest at the deed with these.

Self-managed super funds are a separate category with their own borrowing rules and aren’t covered here; see SMSF commercial property loans if that’s your situation.

Which loans can a trust use?

Practically all of them. The structure affects the paperwork, not the product list.

• Equipment finance and chattel mortgages for vehicles and machinery, owned by the trustee. See equipment finance.
• Unsecured term loans or a revolving facility, assessed mostly on the business’s bank statements. Online lenders can be quick here, though they still check the trustee and guarantors.
• Property-secured loans, where the trust or a related person owns real estate. Our secured business loans page covers first and second mortgages and caveat loans.
• Invoice finance, if the trust’s business invoices other businesses on terms.

Banks are well used to trusts. A trust with tidy financials, a clean deed and strong guarantors will often get its best price from a bank, so give that offer proper weight. If the bank says no because of the structure’s complexity or a short history, non-bank lenders often have more patience with the paperwork.

A worked example: a trust with a thin tax return

Consider an illustrative landscaping and maintenance business run by a corporate trustee for a family trust. The business turns over about $1.1m with a healthy profit, but each year nearly all the profit is distributed to the two directors and a corporate beneficiary. The trust’s own return shows almost no taxable income, and the bank’s automated assessment flags it.

The family wants $120k for two ride-on mowers, a tipper and trailers. Their accountant prepares a one-page summary: profit before distributions, who received what, and the outstanding entitlement owed to the corporate beneficiary with a note that it won’t be called on while the loan runs. With the full deed, the most recent variation appointing the current trustee, two years of trust and personal returns, and guarantees from both directors, the lender can size the equipment finance on the business’s real profit rather than the trust’s taxable figure.

Mistakes that slow trust loans down

• Applying before you’ve seen the deed. If it’s missing or incomplete, find out before the lender does.
• Signing in your own name when you should sign as director of the trustee, or vice versa.
• Forgetting a trustee change. If the trustee was swapped years ago and the paperwork wasn’t finished, fix it now.
• Showing only the trust’s return. Without the distribution picture, the trust looks unprofitable.
• Assuming a corporate trustee means no personal liability. Directors normally guarantee, and the lender can rely on that guarantee.

A trust and a reason to borrow: let’s get it moving

Trust structures exist to help a business and the family behind it. With the deed, the trustee details and the income story in order, they shouldn’t get in the way of good finance.

Getting started takes about sixty seconds on our form. No credit enquiry is lodged on anyone’s file when you ask. We don’t scatter your enquiry around the lending market; one person on our team reads it, considers the trust structure and the purpose, and calls you back. Tell us exactly who the trustee is, what the trust earns before distributions and how much you need, and we’ll be able to point you to the right lender sooner.

Talk to us about a loan for your trust →