Call us now 1300-889-743

Business Equity Loan

Did you know you can get an excellent interest rate for your business loan if you use residential property as security?

While most banks will still refer you to business banking and charge you a higher rate, some lenders can consider giving you the discounts normally reserved for home loans.

How do I qualify?

  • The loan must be predominately for business purpose, as this type of loan is unregulated.
  • You must be buying a commercial property, buying shares or investing money into your business.
  • You must own residential property that has sufficient equity in it.

Note:This lender may require that you take out a second mortgage on your residential property. You may also have to refinance your existing loan to this lender.

How much can I borrow?

We can help you with a secured business loan using either residential property or a commercial property as security. You can borrow:

  • Up to 100% of the value of your residential properties at very competitive interest rates.
  • Up to 80% of the value of your commercial properties.

If you have a home, investment property, commercial property or other real estate that you can use as security then please enquire online or call us on 1300 889 743 to find out how we can help.

How can I borrow 100% with a business loan?

If you are using your home as security and are putting money into an existing business then we may be able to finance up to 100% of the value of your property as a business equity loan!

For example, a business owner has a home valued at $800,000 and has a home loan for $300,000. If his business is profitable and he can prove that the loan will be used for a sound business purpose then we can release $500,000 into the business as a business loan.

This is effectively borrowing 100% of the value of your property.

Can I borrow the full cost of a commercial property?

Yes, you can as long as you have additional security for the loan. Normally this is the investor’s home or an investment property.

For example, an investor wants to purchase a commercial property that is worth $1.5 million with no deposit.

However, they have a residential property worth $600,000 with $200,000 left owing. This lender will allow you to use the $400,000 equity in your residential property, to put toward a deposit for the commercial property.

This increases the Loan to Value Ratio (LVR) on your residential property, bringing to to 100% of the value. You can then borrow on the commercial property to obtain the remainder of the required funds.

Why do banks charge more for business loans?

Our customers commonly ask us why the banks charge more for a loan that is used for business purposes. Considering that the bank has the same equity in the property as security, why is it that commercial or business finance has a higher interest rate?

  • Higher risk to the lender: When starting up a new business or purchasing an existing business there is a high risk of default compared to when purchasing a property and taking out a standard home loan. However, if the existing business has a proven track record, the risk of default is reduced.
  • The assessment of your application takes more time: Lenders can easily assess home loan applications using quick automated methods such as credit scoring. However when assessing a loan for a business, the lender needs experienced credit managers and business bankers who are often on high salaries.
  • Lack of competition: The majority of customers take out a commercial loan with one of the four major banks. Due to the lack of competition in the commercial finance market, many borrowers are simply unaware of the cheaper options and discount packages elsewhere.

How to get the lowest interest rate

There are three main factors that help you get the cheapest possible equity loan so that you can release funds for use in your small business:

  1. Apply with the right lender: The first mistake that most people make is to approach their current bank to get a business loan. The key to getting a low rate is to find a lender that will assess your commercial loan as a home loan. This can reduce the interest rate payable by as much as 1% to 2%!
  2. Use your equity in residential property: Residential property such as a house, unit or block of land is excellent security for a loan. It can be accurately valued and sold quickly in the event of a default. Commercial properties are difficult to value and take a long time to sell, therefore tend to have higher interest rates.
  3. Use 100% secured loans: If your loan is not completely secured, then the rate will be much higher or the loan may be declined. If you are borrowing more than 90% of a residential property or 70% of a commercial property then your loan poses a very high risk. We can only assist with secured business loans.

Our mortgage brokers are specialists regarding finance for small and medium sized businesses.

If you own a property and would like to use it as security for a business equity loan then please call us on 1300 889 743 or enquire online and one of our brokers will give you a call to discuss your needs.

How do banks assess business loans?

The assessment of a business loan is similar to that of a standard home loan.

There must be adequate security, sufficient income to repay the loan and the borrower needs to have an excellent credit history.

In addition to these basic requirements there are some unique aspects of the loan that are also assessed:

  • Purchase of a business: Although there may be financial statements confirming the businesses’ current income, there is no guarantee that the new owner will get the same results. Therefore lenders are conservative when assessing this type of application.
  • Start up businesses: Banks can consider lending to a new business if there is a solid business plan, cash flow projection and the owner has experience in the same industry. Start up business loans must always be fully secured by property.
  • Working capital: Borrowing to expand a current profitable business is the preferred type of business loan for lenders. These loans are considered to be low risk as there is already a proven income and tested business model.
  • Cash out: Banks consider equity releases or “cash out” to be a high risk for most business loans. We can assist with these applications on a case by case basis if residential property is available as security.
  • Directors’ experience: Banks like to see owners or directors who have experience in their industry. If you do not have experience, it is likely that you will be required to provide residential security for your loan.
  • And much more: The assessment of business loans is complex and beyond the scope of this article. We recommend that you discuss your situation with one of our mortgage brokers. They are experts in business equity loans and know which lenders will consider your mortgage application.

Apply for a business loan using your equity

Business loans can be significantly more complicated than standard residential loans.

For this reason, it is best to speak to a mortgage broker who specialises in business equity loans.

If you have a home, investment property, commercial property or other real estate that you can use as security then please enquire online or call us on 1300 889 743.

We can quickly work out which loans you can qualify for and which lenders can give you the best possible interest rate discount.

  • Summer

    I am trying to refinance my current mortgage and use the cash for the business purpose. I wanted to enquire whether is there an LMI in the business loan?

  • Hi Summer,

    There is an LMI only if you are borrowing above 80% in normal circumstances. Also, if you are self-employed you might be charged an LMI above 60% by some lenders, but please note that there is difference in the amount you could borrow depending on the nature of the security.

  • Scoobz

    Hi, I have 250k equity in my home and looking to purchase an established gym for 500k. Can this be done, and under what conditions?

  • Hi Scoobz,
    Yes this can be done in some situations. We’d need to know more information. In particular:
    – Do you have experience operating a gym
    – Is the current business trading profitably
    – Is the loan affordable based on the gym income
    – What are the value of the gym assets e.g. equipment / weights
    It’s a case by case situation. Normally they’d want the full amount secured by property if you don’t have much experience. But in some cases the equipment value can be used as additional security.