Quick answer
An equity release loan lets a business owner borrow against the difference between a property's value and what is owed on it, turning that equity into working capital, a deposit or debt repayment. It can be structured as a first mortgage, a second mortgage behind an existing loan or a caveat, from $20,000 to $5,000,000, with no valuation needed before approval and interest prepaid or added to the loan.
Key points
- Borrow against the gap between value and existing debt
- Use one property or combine several to reach the amount
- Keep an existing bank loan with a second mortgage or caveat
- Funds any genuine business purpose
- Plan the exit before deciding how much equity to use
Equity is capital that is not working
For many Australian business owners, the largest asset they control is not the business at all but the property behind it: the family home, an investment unit, the factory the business operates from. As property values have grown, so has the equity in those assets. Yet that equity often sits idle while the business struggles for capital, because the bank that holds the mortgage will only lend more on income tests the business cannot yet meet.
An equity release loan puts that capital to work. It is assessed on the property and the plan for repayment, so the business can access funds based on what it owns rather than what its last tax return showed.
How much equity is usable?
Equity on paper is the value minus the debt. Usable equity is smaller, because lenders apply a maximum loan-to-value ratio that leaves a buffer for selling costs and market movement.
| Step | Illustrative figures |
|---|---|
| Property value | $1,250,000 |
| Lender’s combined LVR cap for this property | 70% = $875,000 |
| Existing mortgage | $420,000 |
| Room under the cap | $455,000 |
| Capitalised interest and fees allowed for | $40,000 |
| Indicative usable equity | $415,000 |
Illustrative only. Caps vary with property type, location and exit. The equity release estimator lets you run these numbers for up to three properties at once.
Choosing the structure
Second mortgage. Leaves your existing loan untouched and adds a separate loan behind it. Best when the current loan is good value. See second mortgages.
Caveat. Quickest to put in place, for short needs. Can later be converted to a registered second mortgage.
First mortgage refinance. Replaces the existing loan and releases equity in one step. Best when the current loan is expiring, expensive or the lender will not cooperate.
Multiple properties. Two or more properties can secure one loan. That can lift the amount available or improve the overall LVR.
Using a property that belongs to someone else
Business owners frequently offer property held by a spouse, a family trust or a related company. This is common and workable. The property owner must agree, sign as a security provider and, in most cases, receive independent legal advice so they understand the commitment. Our guide on using a director’s home as security explains the safeguards.
Work out your usable equity with a specialist before you decide how much to draw.
How much should you release?
Just because equity is available does not mean all of it should be used. Size the loan to the business need plus a sensible buffer, then check the exit can repay it with room to spare. Releasing more than you need increases cost and leaves less cushion if property values move. Releasing too little can mean coming back for a second loan, with a second set of costs.
Repaying an equity release loan
Equity release loans for business purposes are usually interest-only, with interest prepaid or added to the loan, and repaid at the exit: a property sale, a refinance once the business qualifies with a bank, the sale of the business, or trading cash flow. The loan is flexible and can stay in place longer if the exit is delayed.
An illustrative equity release
Illustrative only. The owners of a growing landscape supply yard want to buy out a competitor’s stock and equipment at a good price, but their bank will not increase their facility until next year’s accounts are lodged. Their home has a bank loan of about a third of its value. A second mortgage releases the funds for the acquisition with interest capitalised for eighteen months. The combined business performs strongly, and when the accounts are lodged the bank refinances everything into a single facility, repaying the second mortgage.
Points to consider before releasing equity
- the total cost in dollars over the expected term
- what happens to the family home if the exit does not arrive
- whether all property owners understand and agree to the arrangement
- whether the first mortgage needs consent for a second mortgage
- the tax treatment of interest on business borrowing, which your accountant can confirm
Equity release and family conversations
When the property is the family home, releasing equity is a family decision as much as a financial one. Everyone with an interest in the property should understand what is being borrowed, why, for how long and what happens if the exit is delayed. Lenders insist on independent legal advice for third-party security providers precisely so that this conversation happens properly. It also tends to produce better decisions: a business plan that has been explained clearly at the kitchen table is usually one that has been thought through.
Equity release compared with selling
Some owners consider selling a property to raise capital. Selling is permanent, attracts agent fees and possibly capital gains tax, and can take months. An equity release loan keeps the property and its future growth, raises the money faster and can be repaid later from the business or from a sale on your own timetable. The right choice depends on whether you want to keep the property long term and how certain the business plan is. Your accountant can help weigh the tax side of each option.
Regional and commercial property
Equity can be released from regional homes, rural lifestyle properties, shops, offices and industrial units, not just metropolitan houses. Each is assessed on current market evidence for that location and property type. Regional and commercial property may attract a slightly lower LVR cap, which the estimator reflects, but the process is the same.
Put idle equity to work
If you own property and your business needs capital, equity release may be the most direct path. Tell us about each property, what is owed against it and what the funds are for, and a specialist will tell you how much is realistically available and the best structure to release it. Enquiring involves no credit check, we keep your information in-house, and accurate figures on value and debt mean a clear answer on the first call. Ask about releasing equity.
Frequently asked questions
How much equity can I release?
Usable equity is the property value multiplied by the lender's maximum LVR, minus existing debts and any capitalised costs. The equity release estimator calculates it for up to three properties.
Do I have to refinance my home loan to release equity?
No. A second mortgage or caveat can release equity while your existing home loan stays exactly as it is.
Can I release equity from a property owned by my spouse or trust?
Yes, if the owner agrees to provide security and signs the documents. Independent legal advice is often required for third-party security providers.
What can released equity be used for?
Business purposes such as working capital, tax debts, deposits on business premises, buying a business, consolidating debts or funding a contract.
Prefer to start now? Enquire here
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