Secured lending for Australian business

Secured lending is one of the oldest ideas in finance: you borrow money, and you put something of value behind the promise to repay it. In Australian business lending that “something” is nearly always property. A factory, a shopfront, a rental unit or the family home can all stand behind a business loan, and the lender’s legal claim over that property is what makes the loan secured.

Secured Business Finance exists to explain this corner of the market properly and to connect owners with a direct lender who works in it every day. We are powered by fundU, a division of U Collective Group Pty Ltd, so an enquiry made here goes to one lender rather than being shopped around a panel. This page is the plain-English map of secured lending: what it is, how the structures differ, who it suits and what to prepare.

What secured lending actually means

Every loan has a lender, a borrower and a promise to repay. What changes with secured lending is what happens if the promise is broken. With an unsecured loan, the lender can only chase you for the money. With secured lending, the lender holds a registered or lodged interest over a specific asset, so it can recover from that asset through a process the law sets out.

Because that protection exists, a secured lender can say yes in situations where an unsecured lender would say no. It can lend larger amounts, accept a more complicated history and move more quickly, since the question it is answering is less “can this business service the debt for five years?” and more “is the property enough, and is the way out of the loan believable?”

That does not make secured lending careless. A good secured lender is more demanding about two things: the title (what is registered against the property and who owns it) and the exit (how the loan will actually be repaid). The detail of each is covered in our guides on how private lenders assess a loan and on exit strategies.

The three structures of private secured lending

Most Australian secured business lending of this kind falls into one of three structures. Which one suits you depends on what is already registered against the property and how quickly you need the money.

A private first mortgage takes first position on the title. It suits property you own outright, or a situation where the new loan pays out a bank and takes its place. First position is the strongest hold a lender can have, which usually means the widest range of loan sizes and the sharpest pricing for the risk.

A second mortgage sits behind an existing first mortgage. You keep your bank loan exactly as it is and borrow against the equity above it. How the two ranks interact is explained on our page about how second mortgages rank.

A caveat loan uses a caveat, a notice lodged on the title, rather than a registered mortgage. It is the quickest structure to put in place, which is why it appeals when a deadline is close, and it can later be converted to a registered second mortgage.

Not sure which fits? The 60-second quiz points you to the right structure, and the guide to first mortgage, second mortgage or caveat sets them side by side.

Who secured lending suits

Secured lending is built for business owners who own property and need money for a business purpose faster than, or in a different shape from, what a bank will offer. In practice that includes:

• owners settling a purchase or paying a supplier on a fixed date, covered in settling a property purchase on time
• directors facing a tax bill, explained in paying the ATO with property equity
• businesses a bank has declined or has stopped renewing, covered in when the bank says no
• property developers with unsold stock or site costs ahead of construction finance, on our developer funding pages
• owners buying out a partner, buying a business or buying premises, shown across our loan purposes

If you are looking for a personal home loan, this is not the right product. Everything here is for business purposes.

What lenders look at

A secured lender’s file comes down to four questions. First, what is the property and where is it? Residential, commercial and industrial property is the usual security, with land and rural property looked at case by case. Second, what is already owing against it, because the usable amount is the equity left over; the page on how much equity you can use walks through the arithmetic. Third, who owns it, since trust and company ownership change who signs; see company or trust owned property. Fourth, what is the exit: a sale, a refinance, a settlement or incoming funds that will repay the loan within the term.

Credit history matters less than most owners expect and more than none. Defaults, ATO debt and past problems are considered case by case, with the property and the exit carrying the most weight. For the full criteria in one place, see our lending criteria.

Cost, terms and repayments

Private secured lending is priced on the individual loan, not off a rate card, because the security, the loan-to-value ratio, the term and the exit all change the risk. We don’t publish numbers for that reason, and we aim for the sharpest price your circumstances allow. Terms are short: private first mortgages here run for 1 to 24 months.

Repayments are often flexible. Interest can be prepaid or capitalised, so there may be no monthly repayments during the term and the loan is repaid in full at the end from the exit. Our guides to the total cost of a short-term loan and private mortgage costs show every cost you should expect to see in a Letter of Offer.

No formal valuation

One feature that surprises first-time borrowers is that no formal valuation is required. The lender assesses the property itself, using the title, the location, recent sales and the debt already registered, which removes the valuer’s fee and the days it adds. The page on no-valuation loans explains how this works and where its limits are.

Is secured lending right for you?

Secured lending is a good fit when you own property with equity, the need is temporary, and you can point to a believable way of repaying. It is a poor fit when there is no exit, when the property is the only thing standing between you and a loss you can’t absorb, or when a cheaper, slower bank facility would do the job. Our honest comparisons, such as secured vs unsecured loans and direct lender vs broker, say plainly when secured lending is not the answer.

When you’re ready, the enquiry takes about 60 seconds, doesn’t involve a credit check, and a secured-lending specialist calls you with a straight answer. You can also read more about the greatest advantages of secured lending or follow the process in how secured lending works.

Secured lending here is provided by fundU, whose own site also covers secured business loans and private business loans in more detail.