Business loans for groups of companies

Groups grow for sensible reasons. A property company holds the premises so the operating risk stays separate. A second trading company starts a new line of business. An acquisition brings in another entity that’s easier to keep than collapse. Before long, a business that feels like one enterprise is five legal entities with money moving between them.

Banks struggle with that. Specialist lenders deal with it every week.

Why do banks decline group structures?

The problem isn’t size or risk. It’s visibility. A bank assessing one company in a group can’t be sure another company won’t pull cash out, run up debts or give security elsewhere. So it asks for financials, tax returns and bank statements across the whole group, and if any piece is late, loss-making or tangled in intercompany balances, the application stalls.

Common sticking points include:

• One entity behind on lodgements while the others are current.
• Tax debt sitting in a company that isn’t the borrower.
• Large intercompany loans with no written terms.
• Property held in one company, income earned in another.

How do specialist lenders fund a group?

They look at the group as a single picture, then build the loan around it:

Step	What happens
Map the group	Who owns each entity, who directs it, what it does
Choose the borrower	Usually the entity that uses the funds and earns the income
Identify security	Property from whichever entity owns it; sometimes business assets too
Set guarantees	Directors, and often the other group entities, guarantee
Check the flows	Intercompany balances, management fees, rent between entities

Where business assets form part of the security, the lender usually registers its interest on the Personal Property Securities Register.

Property-secured business loans run from $20,000 to $5,000,000 as first mortgages, second mortgages or caveat loans. If the property company already has a bank loan, a second mortgage behind it may avoid disturbing that facility. Unsecured and cash-flow lending, typically $5,000 to $500,000, is sized on the trading entity’s turnover and bank statements.

Want your group looked at properly? Start a 60-second enquiry. There’s no credit check when you first enquire.

What should I prepare for a group loan?

1. A structure chart, one page, showing ownership and control.
2. A schedule of intercompany balances: who owes whom, how much, and whether it’s documented.
3. Recent financials for the main entities, or combined management accounts if your accountant prepares them.
4. Bank statements for the borrower and any entity it transacts with regularly.
5. ATO positions for every entity. If one has tax debt, see business loans with ATO debt.
6. Property details for any entity offering security.

If a trust sits anywhere in the chain, add the deed. Our page on business loans for trusts explains what lenders look for.

Are cross-guarantees a good idea?

They’re usually a condition rather than a choice, and they’re how a lender gets comfortable lending into a group. They also carry real consequences. If the borrower can’t pay, the lender can call on each guarantor entity. ASIC’s guidance for directors stresses the importance of getting proper advice early when a company’s finances are under pressure (ASIC insolvency information for directors). Talk the guarantee structure through with your accountant before signing so everyone understands which assets are exposed.

Illustrative example: operating company, property company, one problem

Illustrative only, not a real client. A food manufacturer in Adelaide operates through one company and owns its factory through another. The operating company fell behind with the ATO during a costly recall, and the bank declines a refinance because of the tax debt, even though the property company is clean.

A specialist lender lends to the operating company, takes a first mortgage over the factory from the property company, takes guarantees from the property company and both directors, and pays the ATO at settlement. The group ends up with one lender instead of a bank loan and a tax balance.

What if one entity in the group is struggling?

It happens often. One trading company takes a hit from a bad contract while the rest of the group is fine. The instinct is to quarantine the problem, and sometimes that’s right. But lenders will still ask about it, because guarantees and intercompany loans can connect a struggling entity to the healthy ones.

The practical options usually are:

• Fund the fix. Clear the struggling entity’s pressing debts as part of a group loan, secured on the property company, so the whole group stabilises.
• Ring-fence it. Lend only to the healthy entities, with guarantees structured so they don’t reach the troubled one. This needs care and advice.
• Get advice first. If the struggling entity can’t pay its debts as they fall due, directors should get proper advice before moving money or security around the group.

Tell the lender about the problem entity at the start. It will come up in the searches anyway, and early honesty keeps options open.

Several entities? One conversation.

A structure chart doesn’t scare us; mapping groups is routine. Give us the outline in the enquiry, roughly sixty seconds with no credit check when you first enquire. We don’t farm group files out to multiple lenders, and a specialist will call to walk through the entities with you.

Please be accurate about which entity owns what and any tax debts across the group. It lets us match you properly first time. See if you qualify →