Equity release loans for business

Many Australian business owners are asset-rich and cash-poor. The house has doubled in value, the warehouse is worth far more than the loan on it, but the business account is empty and a bill is due. Equity release turns some of that value into working capital without selling anything.

Paper equity vs usable equity

The first thing to understand is the difference between the equity you have on paper and what a lender will actually release.

Paper equity is simply value minus debt. A $1,200,000 property with a $500,000 mortgage has $700,000 of paper equity.

Usable equity is what’s left once the lender’s maximum LVR is applied. If the lender will lend up to 70% of value in total, the maximum debt is $840,000. Subtract the existing $500,000 and usable equity is $340,000.

Use the second mortgage calculator to estimate yours, then adjust the LVR setting to see how property type changes it.

What changes the LVR

Factor	Effect on how much you can release
Residential vs commercial	Residential usually supports a higher LVR
Metro vs regional	Metro property is usually easier to sell and lend against
Position on title	First mortgage lenders usually go higher than second position lenders
Property type	Vacant land, rural and specialised buildings attract lower limits
Condition	Defects or unapproved works can reduce value or limit lending

How the loan is structured

Which structure suits depends mostly on what’s already on title.

• No mortgage on the property? A private first mortgage is usually cleanest.
• Existing mortgage you want to keep? A second mortgage or caveat loan sits behind it.
• Several properties with modest equity each? Lenders can take security over more than one property to reach the amount.

Good uses of released equity

Equity release works best for defined business needs with a clear return or a clear end point:

• clearing an ATO debt before penalties and enforcement mount
• funding materials, stock or staff for a signed contract
• buying out a business partner
• paying a deposit on business premises or equipment
• consolidating expensive short-term debt into one secured loan

It’s riskier when it’s used to plug ongoing losses with no plan to fix them. If the business is losing money every month, borrowing against the house can turn a business problem into a family one. Speak to your accountant first.

Tax and accounting

Interest on money borrowed for business purposes is generally deductible to the business, but the rules depend on how the loan is structured and what the money is used for. Keep the loan funds and their use clearly documented, and ask your accountant how to set it up before settlement.

A worked example: equity for an acquisition

Two partners running a Brisbane plumbing business had the chance to buy a competitor’s customer book and vans for $450,000. The seller wanted a quick, clean sale and had two other interested buyers. Each partner owned a home, both with good equity.

Rather than put both homes on the line, they offered one: the home in Holland Park with the larger equity buffer. A private lender assessed it at around $1.4 million with $480,000 owing and advanced $470,000 on a second mortgage. The combined ratio was well inside the lender’s comfort zone, so neither the second home nor any business assets were needed as security.

Both partners signed guarantees because the business, not the homeowner alone, was the borrower. Each got separate legal advice. The loan settled in eight business days and ran for twelve months, by which time the enlarged business had the trading history to refinance with a bank at lower cost.

Questions to ask before releasing equity

• How much do you need, and how much buffer do you want to leave in the property?
• Is it better to borrow against one property or spread security across two?
• Who owns the property, and will every owner sign and take advice?
• Will the equity still be there if property values soften during the term?
• What’s the exit, and what happens if it takes longer than planned?

Releasing equity is powerful when it funds something that earns more than it costs. It’s worth the time to model the numbers with your accountant first.

Ask what your property could release

Tell us about the property, what’s owed and what the business needs. We’ll give you a realistic idea of usable equity and which structure suits. There’s no credit check when you first enquire, and your file isn’t passed around a crowd of funders.

Accurate property details and an honest estimate of value help us get it right the first time. See if you qualify, or try the calculator first and send us the result.