Quick answer
A bad credit secured business loan is a private loan backed by a first mortgage, second mortgage or caveat over property, where defaults, court judgments, ATO arrears or past credit problems are considered case by case. The lender weighs the equity in the property and a clear exit more heavily than the credit file, so a damaged history doesn't automatically mean no. Loans run from $20k to $5m.
Key points
- Defaults, judgments, ATO debt and past defaults considered case by case
- First mortgages, second mortgages and caveat loans all available
- Equity and a believable exit carry the most weight
- No credit check when you first enquire, so asking costs your file nothing
- Tell the whole story upfront; surprises slow everything down
- Amounts
- $20k – $5m
- Credit history
- Considered case by case
- Enquiry
- No credit check when you first enquire
- Assessment
- No formal valuation required
A bank’s credit system is built to say no quickly. One default, a judgment or an overdue tax account trips a rule, and the application stops there, regardless of how much equity sits in the property. A private secured lender starts from the other end: the property, the equity and the way the loan gets repaid. The credit file still matters, but it becomes one part of the story instead of the whole verdict.
This page covers bad credit across every property-secured structure, not only second mortgages. If your main problem is a tax debt behind an existing bank loan, our page on a second mortgage with bad credit or ATO debt goes deeper on the ATO side.
What counts as “bad credit” to a secured lender?
“Bad credit” covers a lot of ground. Some issues barely matter once the property and exit are strong; others change what can be done. Here is how the common ones look, using the retention periods the OAIC publishes for consumer credit reports.
| Credit issue | How long it can stay on a credit report | How a secured lender tends to view it |
|---|---|---|
| Default | 5 years | Considered case by case; paid and explained is far better than unpaid |
| Court judgment | 5 years | Usually needs to be settled, often from the loan at settlement |
| Repayment history (late payments) | 2 years | Context matters more than the dots on the report |
| Credit enquiries | 5 years | Many recent enquiries invite questions about declines |
| Serious credit infringement | 7 years | Needs a full, candid explanation |
| Debt agreement | 5 years from the agreement, or 2 years after it ends, whichever is later | Considered case by case |
| Bankruptcy | 5 years from the start, or 2 years after it ends, whichever is later | Current bankrupts can’t offer property; discharged, case by case |
| ATO arrears | Business tax debts can be reported in some cases | Often the very thing the loan is used to clear |
| A past private or caveat loan | Not a credit report category | What matters is whether it was repaid |
Two items in that table work differently from the rest.
Bankruptcy. AFSA explains that when you become bankrupt, your trustee becomes the owner of your share of any house or property you own and decides how to deal with it. So a current bankrupt can’t offer that property as security. The trustee’s interest can also outlast the bankruptcy: AFSA says trustees generally have six years from discharge to deal with property. A discharged borrower should confirm where the trustee stands before applying.
ATO debt. The ATO can report a business’s tax debt to credit reporting bureaus when the business holds an ABN, owes $100,000 or more that has been overdue for over 90 days, isn’t engaging with the ATO, and there’s no active Tax Ombudsman complaint about the reporting. It sends written notice and allows 28 days to act. Clearing the debt with a secured loan before that point keeps the problem off the file altogether.
Why do equity and exit outweigh the credit file?
A credit score predicts whether someone will keep up repayments from income over many years. A short-term secured loan is a different bet. It is repaid by a specific event: a sale, a refinance, or a known payment into the business. If that event is real and the property has enough equity to cover the loan with room to spare, the borrower’s past matters less.
That’s why a private lender asks three questions before it worries about the score:
- Is the security sound? Residential, commercial or industrial property, with vacant land and rural property considered case by case.
- Is there enough equity after everything already owing, including any arrears and debts to be cleared at settlement?
- Is the exit believable, with dates and evidence, not just intentions?
Our guide to how private lenders assess a loan shows how each of those is tested.
Which structure suits a borrower with bad credit?
Credit problems don’t rule out any of the three structures, but they shape which one makes sense.
| Your position | Structure that often fits | Why |
|---|---|---|
| Bank has declined, or is pushing you out | Private first mortgage | Pays the bank out and gives 1 to 24 months to repair the file |
| Bank loan in good order, other debts in trouble | Second mortgage | Keeps the existing loan, clears the problem debts |
| Urgent deadline, small amount | Caveat loan | Quickest to put in place; can convert to a registered second mortgage later |
| Debt-free property | Private first mortgage | No other lender to deal with or ask for consent |
| Loan already in default with another lender | Private first mortgage | Pays the defaulting lender out before enforcement |
If the bank has already said no, see refinancing when the bank says no. If a default notice is already in hand, refinancing a loan in default explains the timelines.
Who is a bad credit secured loan suited to?
It usually suits:
- business owners whose credit issues are explained and largely behind them;
- borrowers using the loan to clear the very debts damaging their file, such as ATO arrears, judgments or overdue suppliers;
- owners with solid equity and an exit that doesn’t depend on the bank changing its mind overnight;
- anyone who needs time, measured in months, to get financials and lodgements up to date before going back to a bank.
It usually doesn’t suit:
- a borrower who is currently bankrupt, because the property isn’t theirs to offer;
- a plan where the loan simply delays the same problem by twelve months;
- borrowing for personal or household purposes, which this lender doesn’t fund;
- a property with so little equity left that one bad month would leave nothing to fall back on.
How do you apply with bad credit, step by step?
- Enquire in about 60 seconds. Property, what’s owed, how much you need and why. No credit check at this point.
- Tell the story on the first call. What happened, when, what’s been fixed, and what’s still open. A specialist would far rather hear it now.
- Property assessment. The lender assesses the property itself; no formal valuation required.
- Letter of Offer. Amount, term, interest method, every fee and the conditions, including any debts to be paid out at settlement.
- Documents. ID, loan statements, entity records and exit evidence, plus any paperwork on the credit issues themselves.
- Settlement. The loan funds, and debts such as judgments or ATO arrears can be paid directly from the settlement.
What documents help a bad credit application?
Beyond the standard documents for a private mortgage, a few extra pages can turn a “maybe” into a “yes”:
- evidence that defaults or judgments have been paid, or payout figures for those still open;
- an ATO statement of account or payment plan confirmation;
- for a past bankruptcy, the discharge date and any correspondence from the trustee about property;
- a one-page explanation, in your own words, of what went wrong and what’s changed;
- proof of the exit: a refinance pre-approval, a sale contract, or contracts showing money coming in.
If tax returns or BAS are behind, a low-doc private first mortgage explains what a lender still needs to see.
How fast can it happen, and what does it cost?
Credit history doesn’t change the speed of the process; preparation does. Funding is possible within 24 to 48 hours for up to $5m once documents are in, and $20k to $250k is possible the same day.
On cost, there’s no published price list. Each deal is priced on its security, LVR, term and exit, and the overall risk picture, including credit history, feeds into that. A first mortgage generally costs less than a second mortgage or caveat loan, because the lender ranks first. A small assessment fee applies, varies per loan and is shown on the Letter of Offer. Interest can be prepaid or capitalised, so there may be no monthly repayments while you rebuild. If the timing matters, start a no-credit-check enquiry and a specialist will tell you what’s realistic.
What are the risks, and how do you keep them in check?
A bad credit loan carries one extra risk: the exit often relies on the credit problem being fixed in time. If it isn’t, the refinance doesn’t happen and the property is exposed.
- Fix the cause, not just the symptom. Use the loan to clear the debts that are damaging the file.
- Keep lodgements current during the term, so a bank can say yes at the end.
- Choose a term with a buffer. If you think you’ll need nine months, don’t take six.
- Have a back-up exit, such as selling the security or another property.
- Watch for warning signs. Our guide to exit strategy red flags lists the ones lenders spot first.
- Know what happens if it goes wrong. Read what happens if you can’t repay a private loan before you sign, not after.
What does a bad credit secured loan look like in practice?
Illustrative example: a Gold Coast civil contractor has two paid defaults, a $60k supplier judgment and $140k of ATO arrears, and the bank won’t refinance the $500k loan on his Nerang industrial unit. The lender assesses the unit at $1.3m. Illustrative: a private first mortgage of $720k (about 55% LVR) pays out the bank, the judgment and the ATO at settlement, with the balance covering costs, with interest capitalised for twelve months. Lodgements are brought up to date, and the loan is repaid in month eleven by a bank refinance.
Illustrative example: a Hobart café owner was discharged from bankruptcy four years ago and bought a home with her partner after her discharge, with $350k owing to the bank on a property assessed at $900k. She needs $70k to refit a second site. Illustrative: total debt of $420k is under 47% LVR. A second mortgage is approved with the bank’s consent, and repaid from the sale of an unused commercial kitchen and six months of trading.
Credit history not perfect? See if you qualify anyway
Asking costs you nothing and leaves no mark on your credit file. Tell us about the property, what’s owing, the credit issues you know about and how the loan would be repaid. A specialist at fundU, the direct lender behind this site, reads every enquiry; it isn’t passed around a list of funders who will all run their own checks.
The more accurately you describe the property and the debts against it, the more useful the first answer will be. For the full picture of every property-secured option, see secured business loans.
Tell us your situation and see where you stand. It takes about a minute, and you’ll know quickly whether there’s a path forward.
Frequently asked questions
I have two paid defaults from three years ago. Will a private lender still look at a first mortgage?
Yes. Defaults are considered case by case, and paid defaults with an explanation are a very different story from fresh, unpaid ones. What decides the deal is the equity in the property and how the loan will be repaid. Tell the specialist what caused them and show they've been cleared.
There's a court judgment against me from a supplier dispute. Is that a deal-breaker?
Not automatically. A judgment is considered case by case, but an unpaid judgment can lead to enforcement against your assets, so lenders usually want to see it settled, or paid out from the loan at settlement. Paying it out as part of the deal is often the cleanest answer.
My bank declined me because of ATO arrears. Can I refinance to a private first mortgage?
Often, yes. A private first mortgage can pay out the bank at settlement and, where the equity allows, clear the ATO debt at the same time. The loan then runs for 1 to 24 months while you rebuild a clean record and refinance back to a bank.
I was bankrupt and was discharged two years ago. Can I borrow against the property I own now?
It's considered case by case. One thing to check first: AFSA says a trustee generally keeps an interest in property owned at the time of bankruptcy for up to six years after discharge. Property acquired after discharge, or property the trustee has finished dealing with, is a cleaner starting point.
I'm currently bankrupt. Can I offer my house as security?
No. When a person becomes bankrupt, AFSA explains that the trustee becomes the owner of their share of any property, so it can't be offered as security by the bankrupt. A co-owner also can't deal with the property without the trustee's consent.
I had a private caveat loan last year that ran late. Will that count against me?
It will be part of the conversation, not the end of it. Explain what delayed the exit and what's different now. A loan that ran late but was repaid in full shows the property and the plan eventually worked.
Will enquiring put another enquiry on my credit file?
No. There's no credit check when you first enquire. That matters, because the OAIC says credit enquiries can stay on a credit report for five years, and a string of recent enquiries can look like a borrower being turned down.
Is a bad credit secured loan more expensive?
Pricing is set on each deal's security, LVR, term and exit, and credit history is part of the overall risk picture. A first mortgage is generally cheaper than a second mortgage or caveat because the lender ranks first. We aim for the sharpest price your situation allows.
My company has bad credit but I own a property personally. Can the property secure the company's loan?
Yes. A director can offer personally owned property as security for a company loan, usually alongside a personal guarantee. Both the company's position and the director's are looked at, with equity and the exit carrying the most weight.
How quickly can a bad credit secured loan settle?
Funding is possible within 24 to 48 hours once documents are in, and smaller amounts of $20k to $250k are possible the same day. Credit issues explained upfront rarely slow a deal; the delays come from surprises discovered halfway through.
I'm on a Part IX debt agreement. Can I still apply?
It's considered case by case. The OAIC says a debt agreement stays on a credit report for five years from when it was made or two years after it ends, whichever is later. Tell the specialist where the agreement is up to and how the new loan fits with it.