Business lending

Equity Release for Business Growth

Equity release for business growth means borrowing against the equity in real estate, with the property offered as security, to fund a business purpose such as expansion, equipment or working capital. HomeSec has been lending since 2004 and provides equity release business loans for business and investment purposes only. Loans range from $20,000 to $5,000,000. Eligibility depends on the lender's assessment.

If you have a growth plan and property equity, you can see if you qualify in a few minutes.

Key takeaways

• The loan must have a business or investment purpose, and money for personal or domestic purposes is not a fit.
• Residential, commercial, rural or vacant land can be used as security, on a first or second-ranking mortgage.
• No cashflow records, financial records, sworn valuation, minimum trading period or serviceability test is required.
• The term is open, and interest can be capitalised for up to 6 months.
• Business-purpose credit is not regulated under the National Consumer Credit Protection Act 2009 (the NCCP Act), so consumer borrower protections do not apply.

How does equity release for business growth work?

The process has three stages: describing the deal, conditional approval, and release of funds.

1. Describe the deal. Explain the amount, the purpose, the timing, the property and how the loan will be repaid. A Lending Manager gives an indicative answer on that call, usually within minutes.
2. Have the seven details ready. These are a rough property value (your own estimate is fine), the address, what is owing and to whom, the amount, the term, the number of people on the title and what the money is for.
3. Conditional approval. This stage needs photo ID, a rates notice and the most recent mortgage statement. It takes about fifteen minutes.
4. Funds released. Settlement can happen in as little as 24 hours from a clean, complete scenario. The typical range is 24 to 72 hours.

HomeSec’s Lending Managers can be reached on 1300 93 83 87, Monday to Friday, 8:30am to 5:30pm Melbourne time.

What does equity release for business growth mean?

The equity in a property becomes security for a loan, and the borrowed funds go towards a business purpose. HomeSec lends only for business and investment purposes. A business purpose must be present for every loan.

This affects how the loan is regulated. Credit provided wholly for business or investment purposes is not regulated under the National Consumer Credit Protection Act 2009 (the NCCP Act). The protections that apply to consumer borrowers therefore do not apply.

Moneysmart has independent background on borrowing and debt. business.gov.au has general information on the finance and funding options open to Australian businesses. For a wider view of the funding types available, see this overview of business finance in Australia.

What business growth purposes can equity be used for?

Equity can fund many business purposes, as long as the purpose is a business one. Common growth uses include expanding operations, buying equipment, building stock and topping up working capital. These are examples only and not recommendations.

Property purchases are also possible in some cases. Equity can fund the purchase of a commercial property in either a personal or a company name. It can also fund a residential property bought in a company name.

Funds can be paid into the borrower’s account or sent directly to the ATO. Paying the ATO directly can help where a business has a tax debt holding back its plans. The ATO publishes guidance for businesses on managing their tax obligations.

Some purposes are outside this lending. Money for personal or domestic purposes is not a fit. Neither is buying a residential property in a personal name, because that is regulated consumer credit under the NCCP Act.

Who can borrow, and which properties can be used as security?

Companies, trusts and sole traders can all apply, including start-ups.

Security can be residential, commercial, rural or vacant land, held on a first or second-ranking mortgage. Several properties can be combined to secure one loan, which is called cross-collateralisation. The borrower’s own home can also be the security.

Lending is available almost anywhere in Australia, including metropolitan, regional and rural areas. Towns of 3,000 or more people are used as a guide. Smaller populations are considered on their merits.

To check your position against these points, read do you qualify for a business loan?

What is assessed, and what is not?

The assessment centres on the property and the deal, not on trading history. No cashflow records, financial records, sworn valuation, minimum trading period or serviceability test is required. HomeSec does not use valuers. It assesses property value itself.

Credit history is still considered, but it is never disqualifying on its own. Defaults, arrears and thin credit files do not automatically rule a borrower out. This can matter to a newer business or one recovering from a difficult period.

A lighter paperwork load does not mean there is no assessment. Every application remains subject to lending criteria, assessment and approval. Eligibility depends on the lender’s assessment of the full scenario, including how the loan will be repaid.

How much can be borrowed, and how do repayments work?

Loan amounts range from $20,000 to $5,000,000.

Loan-to-value ratio (LVR). The LVR can be up to 80% on residential security and up to 70% on commercial security. It is lower on large acreage. It may also be reduced for properties worth less than $800,000.

Term. The term is open, with no minimum or maximum, starting from one month. The borrower chooses the term, can extend it and can repay early.

Repayments. Repayments are interest-only. Alternatively, interest can be capitalised for up to 6 months, which means there may be nothing to pay in the first 6 months. There are no daily or weekly direct debits. After any capitalised-interest period ends, ad-hoc paydowns can be made from $10,000.

Interest rate. The rate is set for each scenario and priced against the loan amount and the security.

What fees and costs apply?

The fee structure is simple. The main upfront cost is a small commitment fee, which is payable only once the loan is conditionally approved.

• Valuation: no valuation fee, because HomeSec assesses property value itself.
• Ongoing: no monthly, line or account-keeping fees.
• Early exit: no exit fee. Repaying early saves interest, and any unused months of capitalised interest are rebated.
• Extensions: no rollover or legal fees, and the loan does not need to be rewritten to extend it.

Interest remains the main cost to weigh against the expected return from the growth plan. The Reserve Bank of Australia publishes the cash rate, which is one of many factors shaping the broader interest-rate environment. Moneysmart has general tools and guidance for understanding the cost of borrowing.

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

Equity release can suit a business owner who holds property equity and has a clear business purpose. It can be particularly relevant where trading history or financial records are limited, because these are not required. It may also suit someone who wants to choose the term and repay early without an exit fee.

It is not the answer in every case. It does not fit when:

• there is no real-estate security to offer
• the loan would sit third behind two existing mortgages
• the money is for personal or domestic purposes

Other options may be simpler in some situations. Where a tax debt is manageable, the ATO’s own arrangements for businesses may be enough without borrowing. Where several debts are the real obstacle to growth, business debt consolidation is a related option worth reading about. Independent information on these choices is available from Moneysmart and business.gov.au.

Ready to take the next step?

If property equity could help fund your next stage of growth, the next step is a short call about your deal. Have the property’s rough value, what is owing on it, the amount, the term and the business purpose ready. It takes only a few minutes to start your application or check your eligibility.

No obligation. Eligibility is subject to assessment.

FAQ

Can I use the equity in my home to fund business growth?

Yes, a borrower’s home can be used as security, as long as the loan is for a business or investment purpose. Several properties can also be combined to secure one loan. Because the purpose is business, the loan is not regulated under the NCCP Act, and consumer borrower protections do not apply. Eligibility depends on the lender’s assessment.

Do I need financial statements or tax returns to release equity for my business?

HomeSec does not require cashflow records, financial records, a minimum trading period or a serviceability test. Conditional approval needs photo ID, a rates notice and the most recent mortgage statement. The assessment focuses on the property, the purpose and how the loan will be repaid. Every application is still subject to lending criteria and assessment.

Can I release equity for business purposes with bad credit?

Credit history is considered, but it is never disqualifying on its own. Defaults, arrears and thin credit files do not automatically rule a borrower out. The property security and the business purpose carry significant weight in the assessment. Eligibility depends on the lender’s review of the whole scenario, so a short call is the clearest way to find out where you stand.

How long does it take to release equity from a property for a business?

An indicative answer is usually given within minutes on the first call. The conditional approval paperwork takes about fifteen minutes. Funds can be released in as little as 24 hours from a clean, complete scenario, with a typical range of 24 to 72 hours. Timing depends on the scenario and the assessment.

What fees apply when releasing equity for business purposes?

A small commitment fee is payable, but only once the loan is conditionally approved. There are no valuation, monthly, line or account-keeping fees. There are also no early exit, rollover or extension fees. The interest rate is set for each scenario, based on the loan amount and the security.

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. Fees and charges may apply.