Quick answer: Lenders generally assess the total secured debt against the lender-assessed property value. Your 'equity' is the difference between value and debt, but not all of that equity is necessarily borrowable. The relevant headroom depends on the lender's permitted total LVR and the debt already secured against the property.
Property-security filter: This page is about business-purpose finance backed by Australian real property. If there is no suitable property available as security, this particular funding pathway will generally not apply.
Questions behind this page
- I understand they'll lend against a % of a property, though not sure if that is against equity or property value?
Equity and borrowing headroom are different numbers
If a property is worth $1 million and has a $400,000 mortgage, the owner's accounting equity is $600,000.
But if a lender's acceptable total LVR for that transaction were 70%, the mathematical debt ceiling would be $700,000. With $400,000 already secured, the headroom would be $300,000, not the full $600,000 of equity.
The lender uses its value
An owner's estimate, agent appraisal and lender valuation can differ. Security capacity is ultimately based on the value the lender accepts for its credit decision.
Second-ranking debt needs the full picture
For a second mortgage, the junior lender needs to know the first mortgage debt because both facilities sit within the total leverage against the property.
What GPS Finance needs to test a scenario
- Australian property offered as security
- estimated property value and current secured debt
- amount required and business purpose
- whether the proposed facility is first or second ranking
- required timeframe
- proposed exit or repayment strategy
Ask GPS to review a property-backed business scenario.
Related guides
- Property-backed business finance
- Second mortgage business finance
- Bank funding shortfall
- Short-term property-backed finance
Sources and verification
General information only. Business-purpose property-backed lending, private lending, first and second mortgage availability, valuation, pricing, fees, security priority, consent requirements and exit criteria vary by lender and transaction. This is not legal, tax, accounting or personal financial advice.
Need help matching this to a business-finance option?
GPS Finance can review the funding purpose, conduct, documents and lender fit before you make a formal enquiry.
