Whose property can secure a business loan?

The security does not have to be the business’s

Many owners assume only property owned by the business can secure a business loan. In practice, most small business loans secured by property use property owned by the people behind the business: a director’s home, an investment unit, a family trust’s property or a related company’s building. What matters is that the owner agrees to provide it and understands the commitment.

Common types of property

Residential homes are the most common security. Investment houses and units are widely accepted. Commercial property such as offices, shops, warehouses and factories is common for larger loans. Vacant land and rural property can be accepted in many cases, usually at a lower loan-to-value ratio. Specialised properties may need more information.

Property owned by directors

A director’s home or investment property is the classic security for a company loan. The director becomes the mortgagor and usually also a guarantor. If the property is jointly owned with a partner, the partner must also sign and should get independent legal advice. See using home equity for business.

Property owned by trusts and companies

Property held in a family trust or a related company can often be used, subject to the trust deed or company constitution and the trustee’s or directors’ agreement. Your solicitor checks that the trust or company has the power to provide security.

Property owned by family members

Parents or other family members sometimes offer their property to help a business owner borrow. This is a serious decision for them. They take on the risk that the property could be sold if the business cannot repay, without any control over the business. Lenders typically require them to get independent legal advice. Consider limiting the amount secured, and plan to release their property through refinancing as soon as practical.

More than one property

Offering two properties can reduce the loan-to-value ratio across the security, making the loan easier to approve. See loan-to-value ratio explained.

What lenders check

Title searches confirm ownership and existing interests. The property is assessed from sales evidence; our property-secured loans need no valuation before approval. Rates notices and mortgage statements confirm outgoings and debts. Identification is verified for every owner.

Where the property is

The property can be anywhere in Australia, regardless of where the business trades. Each state has its own titles office and procedures, which solicitors handle.

An illustrative example

A young builder had strong contracts but a short trading history and little equity of his own. His parents agreed to provide their investment unit as security for a second mortgage, after independent legal advice and with the amount limited. Two years later, with a stronger business and his own home, he refinanced and their unit was released.

What happens to the property during the loan

The owner keeps living in, renting out or using the property as normal. The lender’s interest is recorded on the title by mortgage or caveat, which means the property cannot be sold or refinanced without the loan being dealt with. Insurance must be maintained, rates paid and the property kept in reasonable condition. When the loan is repaid, the mortgage is discharged or the caveat withdrawn and the title is clear again.

Releasing a property later

If several properties secure a loan, it may be possible to release one once the balance falls or the business can borrow on other security. Ask about release terms when the loan is set up, especially if a family member’s property is involved.

Talk about your security options

Property-secured loans run between $20k and $5m. Send a 60-second enquiry and tell us which property might be available. You can ask with no credit check, a specialist reads it, and nothing is passed on. Explore your options.