Using Residential Property as Security for a Business Loan

Key takeaways

• Residential or commercial real estate can be considered as security for a business-purpose loan.
• The property is one part of the picture, and the lender looks at the whole scenario, including the planned exit.
• A credit check is not run when you enquire or at initial assessment.
• Prepaid interest means no scheduled payments for a period, but the interest is not waived and it affects total cost and net proceeds.
• Eligibility depends on the lender's assessment, so comparing net cash received and total repayable matters.

Can residential property secure a business loan?

Yes, a home or investment property can be considered as security for a business loan, and so can commercial real estate. The facility is business-purpose and property-secured, and the lender decides whether to proceed after its own assessment.

Using a residential property does not change the purpose of the loan. The funds are for the business, while the property sits behind the facility as backing. This page is general information only. It does not suggest that any particular reader will be successful.

How does property-secured business lending work?

In general terms, the lender takes a property as backing for the facility, and that backing is called security. For a closer look at this lending type, see secured business loans.

Equity Tap is a direct private lender that has lent its own money since 2022, working Australia wide with a small team making its own decisions. Its facilities are business-purpose and property-secured, from $50,000 to $5 million, over one to twelve months. Borrowers can be micro businesses, sole traders and larger Australian companies.

What does a lender look at besides the property?

The property is only one input. The lender considers the whole scenario, including who is borrowing and how the loan will be repaid.

Past defaults, arrears or a low credit score are considered in the context of that whole scenario. If that is your situation, the page on business loans where bad credit is considered explains more. A credit check is not run when you enquire or at initial assessment.

The planned exit also matters. Exits include sale, refinance or incoming business funds. A short-term facility depends on a clear way to repay it, so a realistic exit plan helps the lender judge the scenario. It also helps the borrower understand the risk if timing changes.

What are prepaid interest and "no scheduled payments"?

For eligible facilities, up to six months of interest may be prepaid into the loan, so there are no scheduled payments during that period. Interest is not waived, and it affects total cost and net proceeds.

Prepaying interest changes when the cost is paid and how much cash reaches the borrower. It does not remove the cost. Because the interest is paid up front, the cash received can be lower than the headline loan amount. Looking only at the absence of scheduled payments can hide the real picture.

What should you compare before borrowing against property?

Compare the net cash received after fees and prepaid interest, the total repayable, and what happens if the exit slips.

For borrowing basics, Moneysmart offers general guidance and business.gov.au has information on finance and funding options.

Who can this suit, and when is it not the answer?

In general terms, property-secured lending is built for business-purpose needs where there is a property to offer as security and a defined exit. Borrowers can include micro businesses, sole traders and larger Australian companies. Security can be residential or commercial, and the page on commercial property loans covers the commercial side.

It may not be the answer when:

• the funds are not for business purposes, since the facilities are business-purpose
• the need runs longer than the one to twelve month terms available
• there is no realistic exit through sale, refinance or incoming business funds
• the borrower is not comfortable placing a property behind the loan

This is general information, not personal advice.

How long does it take? What "as little as 24 hours" means

Eligible, straightforward loans may settle in as little as 24 hours after the lender's assessment, documents and final checks. That describes an eligible scenario. It is not a promise of an outcome or a settlement time.

In practice, the completeness of documents, the property details and the final checks can all affect timing, and the details depend on the lender's current policy.

What are the next steps?

If you are weighing up property as security, start by gathering details of the property, your business and your planned exit. Then start your application to see if you qualify. It takes a few minutes to begin, and eligibility depends on the lender's assessment.

For general information on credit providers, ASIC publishes resources for consumers on credit licensees. No obligation. Eligibility is subject to assessment.

This is general information only and does not take into account your objectives, financial situation or needs. All applications are subject to lending criteria, assessment and approval.

Frequently asked questions

General information only, not legal, tax or financial advice.