Using the equity in your home for a business loan

What the presenter says

The Short opens on a familiar sequence: the business needed cash quickly, the bank said no, and then the owner learnt that the equity in their property could do the job instead. The presenter's case is that a loan secured on property is assessed on the property, so the credit file, the financials and the business's recent performance stop being the deciding factors. Two more claims follow: no repayments for six months, and a term that can be extended. The box under this summary says what each means in the published terms.

How a loan against your home is put together

Most homes that secure a business loan already carry a home loan, and the business loan does not replace it. The bank keeps its first mortgage and its interest rate. HomeSec takes security behind it: a registered second mortgage, or a caveat on the title in every state and territory except New South Wales and Queensland. A registered second mortgage generally needs the first lender's consent, which is one reason it can take longer to settle than a caveat.

The amount available starts with the home's value at today's market. Up to 80% of that value, less what is owed, is the ceiling. A home worth $900,000 with $400,000 still owing has $320,000 of room at 80% before anything else is considered. Lower limits can apply to large rural holdings and to homes worth under $800,000. Several properties can secure one loan if a single home does not have enough equity behind it.

Who has to agree

Everyone on the title signs. That sounds like paperwork and is really a conversation: a spouse or partner who co-owns the home is agreeing to put it behind a business debt, and they should hear about it before the application, not at signing. It is also worth knowing early who is on the title. A home bought years ago in two names, or held in a family trust, brings in people who may not be thinking about the business at all.

What to weigh before you use your home

• The purpose. Only a business purpose qualifies. HomeSec provides credit wholly and exclusively for business and investment purposes.
• The exit. Decide how the loan will end before it begins, whether by selling something, collecting money owed to the business, or refinancing.
• The cost. Private secured money costs more than a loan a bank is willing and able to make. What it costs lists every fee.
• The alternative. If the bank said no for a reason that will pass, a private loan can carry the business until it does. The guide to business loans secured against your home covers the other routes too.