Business owners often have equity tied up in property while the business needs cash for growth, stock, tax, settlement, working capital or a time-sensitive opportunity.
This guide explains three common property-backed structures at a high level. It is general information only and relates to business-purpose lending.
First mortgage business loan
A first mortgage business loan may suit a borrower who owns property with no existing debt, or where the new loan will refinance the existing debt and become the first registered mortgage.
First mortgage security can give the lender a stronger position, which may help with assessment depending on the deal. Equity Tap’s first mortgage business loan page is here: https://equitytap.com.au/1st-mortgages-business-loans/.
Second mortgage business loan
A second mortgage may suit a borrower who wants to keep the first mortgage in place and access remaining equity behind it. This can avoid disturbing the existing first facility, but combined LVR and consent issues need to be considered.
More information is here: https://equitytap.com.au/2nd-mortgages-business-loans/.
Caveat business loan
A caveat loan may suit urgent short-term business funding where the lender is comfortable lodging a caveat over the property. It can be useful where speed matters, but it still needs a clear business purpose and repayment plan.
More information is here: https://equitytap.com.au/caveat-business-loans/.
Choosing the right structure
The right structure depends on urgency, existing debt, property value, loan amount, security type and exit strategy. The borrower should also consider costs, timing and what happens if the loan cannot be repaid on schedule.
A good scenario summary should explain the property, debt, required funds and repayment plan in plain English. That gives the lender or broker a better chance of identifying the right structure quickly.