Property equity is one of the most powerful tools for business funding. Here's how to leverage your property to grow your business.
Why Secure Business Loans with Property?
Key Advantages:
- Lower rates: 6-12% vs 15-25% for unsecured business loans
- Higher amounts: $50,000 to $5 million+ vs limits on unsecured
- Longer terms: Up to 30 years vs 1-5 years unsecured
- Easier approval: Property security reduces lender risk
- Poor trading history OK: Property security compensates
The Trade-off: Your property is at risk if business fails to repay.
Types of Property-Secured Business Loans
1. Commercial Mortgage
What it is: Standard business loan secured by commercial property Security: Your commercial property (office, warehouse, retail) Use: Purchase business property, equipment, fit-out Rates: 5.5-8% p.a. LVR: Up to 70% Terms: 5-30 years
2. Residential Property Security
What it is: Business loan secured by your home or investment property Security: Residential property you own Use: Working capital, expansion, equipment, stock Rates: 6-10% p.a. LVR: Up to 80% Terms: Interest-only or P&I, 1-30 years
3. SMSF Property for Business Use
What it is: Your SMSF buys commercial property, you lease it for business Security: SMSF-owned property Use: Business premises Rates: 5.5-8% p.a. Benefits: Tax-effective rent payments to your own super Complex: Requires specialist SMSF advice
4. Caveat Loans for Business
What it is: Short-term business funding via property caveat Security: Residential or commercial property Use: Urgent cash flow, opportunity investments, equipment Rates: 2-4% per month (24-48% p.a.) Terms: 1-12 months Speed: 24-48 hours possible
Who Can Get Property-Secured Business Loans?
Eligible Borrowers:
- Sole traders with property equity
- Partnerships using partner's property
- Companies (director guarantee on personal property)
- Trusts using trust or trustee property
- Self-employed professionals
Property Types Accepted:
- Residential: House, apartment, land
- Commercial: Office, retail, warehouse, industrial
- Mixed-use: Commercial + residential
- Development sites (depending on lender)
Minimum Requirements:
- Property equity: 20-30% minimum
- Business operating: 6 months+ (varies by lender)
- Demonstrated income: Via BAS, tax returns, or bank statements
- Clear purpose: What will funds be used for?
- Repayment capacity: Business income can service loan
How Much Can You Borrow?
Calculation Factors:
1. Available Equity
Example:
- Property value: $800,000
- Existing mortgage: $400,000
- Available equity (up to 80% LVR): $240,000
2. Serviceability Lenders assess if business income can cover repayments.
Example:
- Business profit: $120,000 p.a.
- Existing business debts: $1,500/month
- Available: ~$6,500/month for loan repayments
- Can borrow: ~$800,000 @ 7% interest-only
3. Loan Purpose Some purposes have lower LVRs:
- Equipment purchase: Up to 80%
- Working capital: Up to 70%
- Business purchase: Up to 65%
- Speculative investment: Up to 60%
Costs Breakdown
Example: $500,000 Business Loan, Residential Security
Upfront Costs:
- Application fee: $800-$1,500
- Valuation: $300-$800
- Legal fees: $1,200-$2,500
- Mortgage registration: $150-$300
- Total upfront: ~$2,500-$5,000
Ongoing Costs (7% p.a., interest-only):
- Monthly interest: $2,917
- Annual interest: $35,000
If Principal & Interest (20 years):
- Monthly payment: $3,876
- Annual payment: $46,512
Bank vs Private Lender
Bank Secured Business Loans
Pros:
- Lower rates (5.5-8% p.a.)
- Established terms
- Regulatory protection
Cons:
- Strict credit requirements
- Extensive documentation
- Slow approval (4-8 weeks)
- Conservative lending criteria
- Require profitable trading history
Private Lender Secured Business Loans
Pros:
- Flexible credit assessment
- Fast approval (1-2 weeks, or 24-48 hours for caveat)
- Low-doc options
- Accept new businesses
- Focus on equity over trading history
Cons:
- Higher rates (7-15% p.a., or 24-48% for caveat)
- Shorter terms typically
- More fees
Strategy: Start with private, refinance to bank once business established.
Common Use Cases
1. Business Expansion
Scenario: Cafe owner wants to open second location
- Property equity: $300,000
- Loan: $250,000 @ 8% p.a., interest-only
- Use: Fit-out, equipment, initial stock
- Exit: Refinance to business loan once location profitable
2. Cash Flow Management
Scenario: Tradie has $80,000 invoice due in 60 days, needs funds now for materials
- Property equity: $150,000
- Loan: Caveat loan $80,000 @ 2.5% per month, 3 months
- Use: Purchase materials, complete job
- Exit: Repay from invoice payment
- Cost: $6,000 for 3 months (worth it vs losing contract)
3. Equipment Purchase
Scenario: Manufacturer needs $200,000 equipment to fulfill large order
- Property equity: $400,000
- Loan: $200,000 @ 7.5% p.a., 7-year term
- Use: Equipment purchase
- Exit: Equipment generates revenue to repay loan
4. Business Purchase
Scenario: Buying established business for $600,000
- Property equity: $500,000
- Loan: $450,000 @ 8% p.a., interest-only 3 years
- Use: Business acquisition
- Exit: Refinance to SBA or bank loan once business in own name
Tax Implications
Interest Deductibility: ✅ Tax-deductible if funds used for business purposes:
- Working capital
- Equipment purchase
- Business expansion
- Stock purchase
- Business acquisition
Not tax-deductible if funds used for:
- Personal expenses
- Personal investment property (separate property loan deductible)
- Paying off personal debts
Tip: Keep business and personal loans separate for clean tax deductibility.
Example: $500,000 loan @ 8% p.a. = $40,000 annual interest Tax deduction @ 30% company rate = $12,000 tax saving Effective interest cost: $28,000 or 5.6% after-tax
Risk Management
Protecting Your Property:
1. Borrow Conservatively Don't maximize borrowing - leave equity buffer in case property values fall.
2. Have Cash Reserves Maintain 6-12 months operating expenses in business savings.
3. Consider Loan Insurance Loan protection insurance can cover repayments if you're unable to work.
4. Structure Correctly Consider which property to use as security (family home vs investment).
5. Have Exit Plan Know how you'll repay:
- Business cash flow
- Refinance to unsecured business loan later
- Sell business asset
- Sell property if worst-case
Common Mistakes to Avoid
1. Using Family Home Unnecessarily If you own investment property, use that as security first to protect family home.
2. Borrowing for Speculative Ventures Don't risk your property on unproven business ideas. Have evidence of demand/viability.
3. No Cash Flow Projection Create realistic cash flow forecasts showing how business will service debt.
4. Ignoring Market Downturn Risk If property values fall, you could end up over-leveraged and unable to refinance.
5. Mixing Business and Personal Keep loan purposes separate for cleaner accounting and tax deductibility.
Application Process
Step 1: Assess Equity (1 day)
- Get property valued (online estimate or formal valuation)
- Calculate available equity
- Determine borrowing capacity
Step 2: Prepare Documentation (1 week)
- Business financials (BAS, tax returns, profit & loss)
- Business plan or use of funds statement
- Property ownership evidence
- Personal financial position
- Credit check
Step 3: Lender Selection (3-5 days)
- Compare bank vs private
- Consider rate vs approval likelihood
- Assess speed requirement
- Connect with suitable lenders
Step 4: Application (1-2 days)
- Submit formal application
- Lender assessment begins
Step 5: Valuation (3-7 days)
- Lender arranges property valuation
- Confirms security position
Step 6: Approval (1-2 weeks banks, 3-5 days private)
- Formal approval issued
- Loan documents prepared
Step 7: Settlement (1-2 weeks)
- Sign loan documents
- Mortgage registered on property
- Funds released to business
Total Timeline:
- Banks: 4-8 weeks
- Private lenders: 2-4 weeks
- Caveat loans: 2-5 days
Frequently Asked Questions
Can I use my spouse's property for my business loan? Yes, with their consent and co-signing of security documents. They don't have to be involved in the business.
What if my business is brand new? Banks typically require 2+ years trading. Private lenders may accept 6 months or strong business plan with experience in the industry.
Can I use property I'm still paying off? Yes, as long as you have sufficient equity (typically 20-30% after both loans).
What happens if I can't make repayments? Lender will work with you initially. Eventually, they can enforce security and sell property to recover funds. Avoid this by communicating early if struggling.
Can I borrow for multiple businesses? Yes, but lenders will assess your ability to service all debts.
Your Next Steps
- Calculate your equity: Property value - existing loans
- Determine loan amount needed: Be specific about use
- Prepare 6-12 month business cash flow forecast
- Gather business documents: Tax returns, BAS, bank statements
- Connect with lenders: We'll match you with suitable business lending specialists
Real Success Stories
Mark - Builder
- Situation: Won $800,000 contract, needed $150,000 for materials upfront
- Solution: Caveat loan on investment property, $150,000 @ 3% per month, 4 months
- Outcome: Completed project, paid off loan from project payment
- Cost: $18,000 for 4 months vs losing $800,000 contract
Lisa - Online Retail
- Situation: Expanding from bedroom to warehouse, needed $300,000
- Solution: Residential security loan @ 8.5% p.a., interest-only 3 years
- Outcome: Revenue grew from $200k to $1.2M annually, refinanced to bank after 18 months
- Worth it: Built $1M+ business using $300k property equity
Property-secured business loans bridge the gap between small business finance and traditional property lending - offering business owners significant capital at reasonable rates.
Ready to fund your business growth? Connect with business lending specialists for a confidential assessment.