Funding the deposit on business premises or investment property

The deposit problem

Many business owners have plenty of wealth tied up in property but little spare cash. When the right premises or investment comes along, the deposit is due on exchange, often within days, while the money sits locked in a home or another building. Selling to free up cash takes months. A bank top-up may need weeks and full financials. Meanwhile the vendor wants a signed contract and a deposit.

Deposit funding solves this by borrowing against the equity in a property you already own, so the deposit can be paid on exchange.

How deposit funding works

1. Identify the security. A home, investment property or business premises with equity above any existing loan.
2. Choose the structure. A second mortgage or caveat leaves an existing loan untouched; a first mortgage suits an unencumbered property.
3. Assess quickly. No valuation is needed before approval; the property is assessed from market evidence and title searches.
4. Fund the deposit. Money can be paid directly to the vendor’s agent or solicitor trust account.
5. Settle the purchase. The main purchase loan funds the balance at settlement.
6. Repay. The deposit loan is repaid from a refinance, a sale or other funds.

What deposits are commonly funded

Purchase	Typical feature
Owner-occupied business premises	Commercial lenders often want a bigger contribution
Industrial units and warehouses	Strong demand can mean short exchange windows
Development sites	Vendors may want larger deposits for long settlements
Investment property for a business trust	Purpose and entity structure need to be clear
Business acquisitions with property	Deposit on both business and freehold

Thinking beyond the deposit

The deposit is only the first cash demand. Before you exchange, map every cash need to settlement: the deposit, transfer duty, GST if the purchase is a taxable supply, legal costs, and any shortfall if the main lender’s valuation comes in low. A deposit loan sized only for the deposit can leave you short again at settlement. It often makes sense to size the secured loan to cover deposit, duty and costs together. See stamp duty funding and settlement shortfalls.

Work out the full cash needed with a specialist before you sign the contract.

Alternatives worth considering

• Deposit bonds. A guarantee used in place of a cash deposit, repaid at settlement. Useful where the vendor accepts them, but they do not help with duty or the settlement balance.
• Negotiating a smaller deposit. Some vendors accept a smaller initial deposit with the balance later.
• Vendor terms. Occasionally a vendor will allow part of the price to be paid after settlement.
• Releasing equity through your bank. Possible if time and the bank’s criteria allow.

A secured private loan is the most flexible of these, because it provides cash for any purpose and does not depend on the vendor’s agreement.

An illustrative deposit loan

Illustrative only. A logistics company finds a warehouse close to its main customers. The vendor wants a ten per cent deposit on exchange within a week and a ninety-day settlement. The directors’ home has a modest mortgage. A second mortgage over the home provides the deposit and an allowance for duty, with interest capitalised. At settlement, the bank funds the balance of the purchase. Six months later, the directors refinance the home and repay the second mortgage.

Planning the exit

The most common exits for deposit funding are a refinance of the security property once the purchase has settled, the sale of an existing property the business no longer needs, or business cash flow over the following year. Set a realistic term with the exit strategy timeline, and remember the loan can stay in place if the exit takes longer.

Mistakes to avoid

• exchanging before confirming the main purchase loan is realistic
• forgetting duty and GST when sizing the loan
• using the family home without everyone who owns it understanding the arrangement
• choosing a term that ends before the purchase settles

Paying the deposit directly

Deposits are usually paid into the trust account of the vendor’s agent or solicitor. A secured loan can pay that account directly at settlement of the deposit loan, which keeps the money trail clear and avoids delays moving funds between accounts. Tell your specialist the trust account details and the exchange deadline as early as possible so the payment can be scheduled. If the exchange deadline is tighter than the loan timeline allows, ask the vendor whether a short extension or a staged deposit is possible while funding is finalised.

Secure the property, then sort the rest

When the right property appears, the deposit should not be what stops you. Tell us about the purchase, the deposit required, the exchange date and the property you can use as security. There is no credit check when you first enquire, your details stay within our team, and accurate figures for value and existing debt let us confirm quickly whether the deposit can be funded in time. Ask about deposit funding.