Quick answer
You can use equity in your home to fund a business through a second mortgage or caveat behind your existing home loan, or by refinancing the whole property. Home equity can unlock larger amounts and more flexible terms than unsecured lending, even with bad credit or tax debt, but it puts the family home at risk if the business cannot repay. Independent legal advice and a clear repayment plan are essential.
Key points
- Second mortgages and caveats keep your home loan untouched
- Refinancing replaces the home loan with a bigger one
- Co-owners must agree and should get independent advice
- Have a clear plan to repay or refinance
Why home equity matters so much
For many small business owners, the family home is the largest asset they own, and years of repayments and price growth have built substantial equity in it. Meanwhile, the business may be struggling to borrow unsecured because of tax debt, credit history or short trading. Home equity bridges that gap. It is also why property-secured lending is so common in Australian small business.
The three main structures
A second mortgage is registered behind your existing home loan and uses the equity above it. Your home loan stays exactly as it is. A caveat loan relies on a caveat lodged against the title instead of a registered mortgage. It is quick to arrange, best for short needs, and can be upgraded to a registered second mortgage down the track. A refinance replaces your existing home loan with a new, larger loan that includes the business funds. Our guide on second mortgages versus refinancing compares them in detail.
Business loans secured by property run of $20,000 up to $5,000,000. No valuation is needed before approval on our property-secured loans, and interest can be prepaid or added to the loan, so the business may not need to make repayments during the term.
Working out your equity
Equity is the property’s value minus everything owed against it. Lenders then apply a maximum combined loan-to-value ratio, which depends on the property type, location and the lender’s position on the title. The property equity calculator shows your current position and how much room there may be.
Involving co-owners
If your home is jointly owned, every owner must agree and sign. That conversation deserves time. Your partner should understand what the business needs, how the loan will be repaid and what happens if it is not. Lenders commonly require, and good practice strongly recommends, independent legal advice for co-owners who are not directors of the business.
Understanding the risk
The central risk is simple: if the business cannot repay and no refinance is possible, the lender can enforce its security, which may mean selling the home. That is why the repayment plan matters as much as the loan. Be realistic about trading, build in a buffer and consider what would happen if the plan took longer.
Making it a bridge, not a burden
The healthiest use of home equity is as a bridge. Clear the tax debt, consolidate expensive facilities or fund the contract, then work toward repaying or refinancing to a cheaper, longer-term structure once the business recovers. When that refinance settles, it repays the property-secured loan and the home is back to its original position.
Tax and accounting
Using home equity for business purposes may have tax implications, including possible deductibility of interest on the business portion. Talk to your accountant before you proceed so the loan is structured and recorded correctly.
Alternatives to consider first
If the amount is small relative to turnover, an unsecured loan or equipment finance may avoid putting the home on the line at all. Our guide comparing unsecured and secured loans helps you decide.
An illustrative example
A builder and his wife co-owned their home with a modest loan. His business had an ATO debt and a large job starting. After independent legal advice for both, they used a second mortgage to clear the tax and fund materials, with interest added to the balance. The job’s progress payments covered the business’s needs, and the loan was refinanced with their bank a year later.
Talk it through properly
Submit a short enquiry with the property and what the business needs. Asking involves no credit check, a specialist calls you back, and your details stay private. Explore your home equity options.
Frequently asked questions
How much equity can I use?
Lenders look at the combined debt on the property against its value, plus property type and location. The property equity calculator shows your position.
Does my partner need to agree?
If your partner co-owns the property, yes. They will sign the documents and should get independent legal advice.
Will using home equity affect my home loan?
A second mortgage or caveat sits behind it and leaves it unchanged. Some home loan contracts require consent or notice.
What if the business fails?
The lender can enforce its security over the home. This is the central risk to weigh before proceeding.
Is there a tax benefit?
Interest on money used for business purposes may be deductible. Ask your accountant.
Prefer to start now? Enquire here
About 60 seconds. No credit check when you first enquire, and a person who handles unusual deals calls you back.