# Business Loans Secured by Property: Complete Guide for Australian Business Owners
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:**
1. **Lower rates**: 6-12% vs 15-25% for unsecured business loans
2. **Higher amounts**: $50,000 to $5 million+ vs limits on unsecured
3. **Longer terms**: Up to 30 years vs 1-5 years unsecured
4. **Easier approval**: Property security reduces lender risk
5. **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](/connect)
**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
1. **Calculate your equity**: Property value - existing loans
2. **Determine loan amount needed**: Be specific about use
3. **Prepare 6-12 month business cash flow forecast**
4. **Gather business documents**: Tax returns, BAS, bank statements
5. **[Connect with lenders](/connect)**: 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](/connect) for a confidential assessment.