Private mortgage for companies and trusts: which entity should borrow?

Plenty of Australian businesses are run through a company, a family trust with a corporate trustee, or both, and the property they could borrow against often sits somewhere else again: in a director’s name, in a separate property trust, or with a spouse. None of that rules out a private mortgage. It just means deciding, before anything is signed, who does what.

Our page on company or trust owned property covers how an entity that owns land signs a mortgage. This page steps back one level: which entity should be the borrower, and how the pieces fit together.

What are the three roles in a structured loan?

Every private mortgage has three jobs, and with companies and trusts they’re often done by different parties:

1. The borrower. The entity that receives the money and owes the debt.
2. The security provider. The registered owner of the property, who signs the mortgage.
3. The guarantor. A person or entity who promises to pay if the borrower doesn’t, usually the directors.

When a sole trader borrows against their own home, one person fills all three roles. When a trading company borrows against a property owned by the directors’ family trust, three different parties may sign. Both are normal. What slows loans down is not working this out until the documents are being drawn.

Which entity should borrow?

As a starting point, the entity that will use the money should be the borrower. That keeps the debt in the same place as the business activity it funds, which is usually what your accountant will want for tax and record-keeping. Some common combinations:

Who needs the money	Who owns the property	Usual structure
Trading company	The company itself	Company borrows and gives the mortgage; directors guarantee
Trading company	A director, personally	Company borrows; the director mortgages their property as third-party security and guarantees
Trading company	A family trust	Company borrows; the trustee gives the mortgage if the deed allows; directors guarantee
Trust that runs the business	The same trust	Trustee borrows and gives the mortgage in its capacity as trustee
Sole trader	Themselves	Borrows and mortgages in their own name
Two businesses with shared owners	One of them	The borrower is the business that needs funds; the other gives security if appropriate

Your accountant should confirm the structure that suits your tax position before you commit. Ours is a lending view, not tax advice, and it’s always better to agree the borrower before the Letter of Offer is issued than to change it after.

How do trusts show up on a title?

Usually they don’t, which surprises many people. NSW Land Registry Services states that fiduciary relationships aren’t shown on the Torrens register: the trustee is recorded as the owner, and the trust and its beneficiaries are kept off the title. Other states work on similar principles.

For a private mortgage, that means the title alone can’t tell us whether a trustee has power to borrow or give security. That comes from the trust deed. We’ll ask to see:

• the trust deed, with every variation since it was made;
• any deed appointing a new trustee;
• details of the trustee company, if there is one;
• confirmation of who controls the trust, such as an appointor.

A deed that doesn’t allow the trustee to give security for someone else’s debt can sometimes be varied, but that takes time. Check it early.

What paperwork does each structure need?

Have these ready before you enquire (our documents for a private mortgage guide explains why each one matters). It turns the first call into a confirmation rather than a list of requests:

Structure	Documents
Company	Current company extract from ASIC’s registers, constitution if there is one, ID for each director and guarantor
Trust with a corporate trustee	Trust deed and variations, the trustee company’s extract, ID for each director of the trustee
Trust with individual trustees	Trust deed and variations, ID for each trustee
Third-party property owner	ID, the property’s latest loan statement and rates notice, and their willingness to get independent advice

Every entity on the title must sign the mortgage, and every guarantor signs the guarantee. If one director is overseas, say so on day one; arranging remote signing is fine but takes planning. Once the papers are gathered, the 60-second loan check is the next step.

Should a director’s own property be offered as security?

Only if it’s needed. It’s tempting to offer every property you own in the hope of a bigger or faster yes, but each extra title brings its own signatures, its own bank consent and its own discharge at the end. The cleaner the security, the quicker the settlement.

Ask three questions before you offer personal property for a company’s loan:

• Is there enough equity in the entity’s own property? If the company or trust property covers the loan comfortably, start there.
• Does a bank already hold a mortgage over the home? If so, adding a second mortgage means waiting on that bank’s consent. A second mortgage over company or trust property may be faster.
• Is everyone on the title comfortable? A spouse who co-owns the home has to sign too, and should get independent advice before doing so.

If personal property is needed, it isn’t a problem; it’s one of the most common structures we see. It just shouldn’t be added by default. For newer businesses with no property of their own, our page on start-up businesses shows how founders’ property usually fits in.

Illustrative example: a company, a trust and a director’s home

A Melbourne hospitality group runs three cafés through a trading company. It needs $450k to fit out a fourth site. The trading company owns no property. The directors’ family trust, with a corporate trustee, owns a debt-free warehouse leased to a third party, and one director owns her home with a bank loan.

Illustrative only. The trading company is the borrower, because it will use the funds. The trustee company gives a first mortgage over the warehouse, after the trust deed is checked and confirms the trustee can secure another party’s debt. Both directors guarantee. The director’s home isn’t needed, so it stays out of the loan, keeping the security simple and avoiding a second bank consent. The loan is repaid when the group refinances with a bank 14 months later.

Does the type of borrower change the rules that apply?

Yes, in one important way. ASIC’s guidance on the National Credit Code says it applies where the borrower is a natural person or strata corporation and the credit is wholly or predominantly for personal, domestic or household purposes, or for residential investment property. A company borrowing for its business sits outside that.

Small businesses aren’t left without protection, though. ASIC explains that unfair terms in standard form contracts with small businesses can be void, where the business has fewer than 100 employees or turnover under $10 million and, for financial products, the upfront price is no more than $5 million. Your own solicitor’s review of the Letter of Offer is still the best protection of all.

Running your business through a company or trust? See if you qualify

Structures don’t scare us. Companies, trusts and sole traders all borrow with us, including businesses that started last month. Tell us who needs the money, who owns the property, what is owing on it and how the loan will be repaid.

Enquiring takes about 60 seconds and there’s no credit check when you enquire, so no director’s file is touched just for asking. Your details go to one direct lender, not a pile of lenders. A secured-lending specialist reads the structure and calls you. Please be accurate about who owns what; it’s the detail that decides the paperwork.

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