Using a related party's property as security for a business loan

Many businesses don’t own property, but the people or entities around them do. A husband’s home, a parent’s investment unit, a family trust’s commercial building, a sister company’s warehouse. Using that property as security can turn a declined unsecured application into a workable property-secured loan.

It’s also a serious ask of whoever owns the property. This page covers both sides.

Why does property security matter so much?

Property is the security lenders are most comfortable with. The Reserve Bank’s October 2025 Bulletin noted that new small business loans secured with residential property are, on average, four and a half times as large as those without it, and that collateral requirements remain one of the main barriers owners report. For a business with credit problems or a short history, property often decides whether a loan happens at all.

Property-secured business loans run from $20,000 to $5,000,000 as first mortgages, second mortgages or caveat loans over residential or commercial property. When the business owns none, related-party property can unlock that range.

Who can provide security for someone else’s business loan?

Related party	What’s usually involved
Spouse or partner	Mortgage over their property or share of it, plus a guarantee
Parent or other family member	Mortgage and guarantee, independent legal advice usually required
Family trust	Trustee gives the mortgage, if the deed allows security for another party
Sister company	Company gives the mortgage, backed by a directors’ resolution
Co-owner of a property	All owners usually need to sign

With trusts, the ATO notes that trustees must deal with trust property in line with the deed, so the lender will read it to confirm the trustee can support another party’s debt. See business loans for trusts. For companies, see loans for groups of companies.

What does the property owner need to understand?

Plainly: if the business doesn’t repay, the lender can call on the guarantee and ultimately enforce the mortgage over their property. That’s the trade-off that makes the loan possible. So lenders take care to confirm:

• The owner understands the loan’s purpose, amount and term.
• They’ve had the chance to get independent legal advice, and often a solicitor’s certificate confirming it.
• They’re not under pressure to sign.
• Any trust or company involved has the power to give the security.

Some lenders allow the guarantee or mortgage to be limited to a set amount, which caps the owner’s exposure. It’s worth asking.

When does related-party security make sense?

It works best when:

1. The business is sound and the funding has a clear purpose, such as clearing tax debt, refinancing expensive loans or funding a contract.
2. There’s a realistic plan to repay or to release the security later, for example by refinancing once the business’s own credit or history improves.
3. Everyone involved is informed and genuinely willing, and has had time to think it over without pressure.

It’s less suitable when the business is losing money at its core and the property is being used to delay a harder decision. If that’s where you are, our way-out guides are a better starting point.

To see whether related-party security could work for your file, start a 60-second enquiry. There’s no credit check when you first enquire.

How can the security be released later?

Plan the exit from day one. Common routes include refinancing to a facility secured on business assets once trading history builds, refinancing to a bank once credit issues age off, selling an asset, or simply repaying the loan over its term. A short-term property-secured loan with a clear refinance path is often the fairest arrangement for the property owner.

Illustrative example: a sister company’s warehouse

Illustrative only, not a real client. Two brothers own a transport company that leases its depot from a property company they also own. The transport company has a default from a disputed fuel account and needs to refinance three expensive equipment loans. The bank declines.

A specialist lender lends to the transport company and takes a mortgage over the depot from the property company, supported by a directors’ resolution and guarantees from both brothers. The three equipment loans are paid out at settlement, and monthly repayments drop.

How should I raise it with the property owner?

Treat it like the business decision it is. Give them the same information a lender would: what the money is for, how much, for how long, how it will be repaid and what happens if it isn’t. Show them the business’s recent bank statements and your plan. Encourage them to see their own lawyer, and don’t be offended if they want limits on the guarantee or a shorter term. An arrangement that everyone understands from the start protects the relationship as well as the loan.

Someone willing to help? Let’s do it properly.

Related-party security is a generous thing to offer, and we treat it with care. Tell us who owns what in the one-minute form, with no credit check when you first enquire. The file isn’t passed to a crowd of lenders, and the specialist who calls will explain exactly what the property owner is agreeing to.

Please tell us accurately who owns the property and how they’re related to the business. It helps us find a lender who handles third-party security well. See if you qualify →