Scenario: urgent business funding against property

Here we follow a hypothetical owner of a small trade business who needs money quickly. The owner, the business and the debts are invented. The aim is to show the decisions involved, the alternatives worth checking first and the Privet tools that help you test your own figures.

The pressure point

The hypothetical owner runs a joinery workshop through a company. A difficult year left the business behind on its activity statements, and a sizeable tax debt has built up. At the same time, its main timber supplier has put the account on hold until an overdue invoice is paid, which threatens current jobs.

The owner and their partner own their home and have reasonable equity in it. A broker mentions that a private lender could advance funds against the home within a short time. That speed is appealing, but borrowing against a home to solve a business cash flow problem is a significant step, and the owner wants to understand it first.

Pause and check the alternatives

An ATO payment plan

The ATO generally allows businesses that cannot pay a tax debt in full to arrange a payment plan, and some plans can be set up online or through a registered tax agent. A plan does not stop interest: the general interest charge usually continues to accrue on the unpaid balance. Even so, a plan may cost less than a short-term private loan and does not put the home on the line. The ATO considers each request on its circumstances, so ask early and keep lodgements up to date.

Company directors should also be aware that, in some circumstances, directors can become personally liable for certain unpaid company tax amounts. The rules are technical, so ask an accountant or lawyer how they apply.

Talking to the supplier

Suppliers often prefer a credible repayment arrangement to a dispute. A written proposal to clear the overdue invoice over a short period, while paying new orders on time, may reopen the account without new borrowing.

Free financial counselling

The National Debt Helpline offers free, confidential financial counselling and can point business owners to specialist services. Privet's getting help page lists other free support. Talking to a counsellor before signing a loan costs nothing and may reveal options the owner had not considered.

If borrowing still makes sense

Suppose the owner concludes that a loan is needed, for example because the payment plan offered does not match the business's cash flow. The usual product is business funding secured by property, typically a first or second mortgage from a private or non-bank lender.

Regulated or not

A loan used mainly for business purposes is generally not covered by the National Consumer Credit Protection Act 2009, even when it is secured by the family home. The lender will usually ask the borrowers to sign a business purpose declaration. That has consequences: responsible lending obligations may not apply, and hardship rights may be narrower. Read the declaration carefully and make sure it is accurate.

What the lender looks at

A private lender in this situation usually focuses on:

• The value of the property, from a valuer the lender instructs, and any existing mortgage over it.
• What the money is for, often with a request to pay the ATO or supplier directly at settlement.
• How the loan will be repaid, whether from improved trading, a refinance to a bank or the sale of an asset.
• Recent activity statements, a tax portal summary and basic business financials.
• Identity checks for every borrower and guarantor, and often personal guarantees from the directors.

If an existing home lender holds a first mortgage, a second mortgage may need that lender's consent, which can slow things down.

Getting the paperwork ready

Delays in urgent deals usually come from missing paperwork rather than from the lender's credit decision. Having identification, rates notices, the existing mortgage statement, the ATO account summary and the supplier's invoice ready can save days. The preparation checklist lists documents lenders commonly request.

The costs to ask about

Short-term business loans usually carry several charges beyond interest: establishment, valuation, legal, line or monthly fees, discharge and possibly exit fees. Interest may be prepaid at the start, deducted from the advance, which reduces the cash the owner actually receives. Default interest applies if repayment is late.

Enter every item from a written offer into the loan cost estimator to see the total over the expected term, and run it again for a longer term in case repayment slips. Comparing that total with the interest and conditions of an ATO payment plan gives the owner a clearer basis for the decision.

The exit is the real question

Borrowing to pay one creditor only helps if the new loan can be repaid. If the business's trading has not changed, the debt has simply moved and now sits over the home. Before signing, the owner should write down how the loan will be repaid, by when, and what happens if that falls through. The exit timeline planner can help map those dates.

What can go wrong

• Repayment depends on hope. If trading does not improve, the loan may expire with no way to repay it.
• Costs are larger than expected. Fees and prepaid interest can absorb a meaningful share of the advance.
• The home is at risk. Default can lead to enforcement against the security property.
• Pressure tactics. Requests for upfront fees or rushed signing are warning signs, so check the lender first using the how to check a lender guide.

Questions to ask

1. Would the ATO accept a payment plan, and what would it cost in total?
2. Will the supplier agree to terms instead?
3. Is this loan regulated, and what protections do I have if it is not?
4. What is the full cost, including fees deducted at settlement?
5. How will I repay it, and what is my backup plan?

If things become difficult later, the financial hardship and complaints lesson explains your options. This page is general information only and not financial, legal or tax advice.