Beginner's Guide to Refinancing for Business Equity

Refinancing to access equity for your business means replacing your current home loan with a larger one and taking the difference in cash.

The equity you can access depends on how much your property has increased in value since you bought it, minus what you still owe. Lenders typically allow you to borrow up to 80% of your property's current value without requiring lenders mortgage insurance, though some will stretch to 90% if you're prepared to pay the premium. In Double Bay, where the median house price sits at $8,275,000 and units range from $1,825,000 to $2,360,000, even modest equity growth can unlock substantial capital for business purposes.

How Lenders Assess Equity Release for Business Use

Lenders treat business equity release differently to personal use. They will ask for your last two years of tax returns, your most recent business activity statement, and often a profit and loss statement covering the past 12 months. Self-employed borrowers face closer scrutiny because lenders want to see that both your personal income and business cashflow can service the increased loan amount.

Consider a buyer who purchased a unit in Rushcutters Bay three years ago for $950,000 with a 20% deposit. The loan started at $760,000. The property is now valued at $1,211,000, and the loan balance has dropped to $720,000. That leaves around $250,000 in accessible equity if they refinance to 80% of the current value. The lender will assess whether the buyer's business income can service a loan of roughly $970,000, not just whether the business plan makes sense.

When Refinancing for Business Makes Sense

Refinancing to fund a business works when your business income is steady, your property has grown in value, and the cost of borrowing is lower than the return you expect from the business investment. It also works when you need working capital but don't want to dilute ownership by bringing in investors or paying the higher interest rates attached to unsecured business loans.

In Double Bay and surrounding suburbs like Darling Point, Bellevue Hill and Rose Bay, property values have risen consistently over the past decade, and many professionals who bought during or before the pandemic now hold significant equity. If your home loan refinancing strategy aligns with a genuine business need, this can be one of the lowest-cost ways to access growth capital.

What a Lender Needs to See in Your Business Financials

Your lender will calculate your serviceability using your taxable income, not your turnover. If you've been claiming significant deductions to reduce tax, those deductions will reduce your borrowing capacity. Lenders add back some non-cash deductions like depreciation, but they won't add back discretionary spending or one-off write-offs.

Most lenders also apply a loading to self-employed income, meaning they discount it by 10% to 20% to account for variability. If your business has been trading for less than two years, some lenders won't consider the income at all. A small number of lenders will assess using a single year of tax returns if your accountant provides a letter confirming continuity of industry experience, but these are niche policies and not widely available.

If your business structure involves a trust or company, the lender will want to see the trust deed or company financials as well. The more complex your structure, the more documentation you'll need to provide and the longer the refinance application process will take.

Fixed Rate Period Ending: Timing Your Refinance

If you're coming off a fixed rate in the next three months, that's often the most cost-effective time to refinance for equity release. You avoid break costs, and you can restructure your loan to suit your current needs rather than rolling onto your lender's variable rate.

Many Double Bay clients who fixed during the pandemic are now coming off rates below 2.5% and facing variable rates closer to 6%. That rate jump alone is a reason to review your loan, and if you were already planning to access equity for business purposes, doing both in a single refinance process saves time and avoids paying two sets of valuation and application fees.

How the Funds Are Released After Settlement

Once your refinance settles, the new lender pays out your old loan and transfers the remaining funds to your nominated account. Some lenders will release equity into an offset account linked to your loan rather than paying it out as cash. This gives you flexibility to draw it down as needed and reduces the interest you pay in the meantime.

If you're using the funds for business purposes, keeping them in an offset account also makes it simpler to track the business portion of your loan for tax purposes. Interest on the portion used for business investment is generally tax-deductible, but only if you can demonstrate the funds were used for that purpose. Your accountant will want a clear paper trail.

Borrowing Capacity and Debt Serviceability

Your borrowing capacity is not the same as your available equity. You might have $300,000 in equity, but if your income won't service the higher repayments, the lender won't approve the full amount.

Lenders assess serviceability by applying a buffer of around 3% above the current interest rate. That means even if you're borrowing at 6%, they'll test whether you can afford repayments at 9%. If you have other debts like car loans, credit cards or existing investment loans, those commitments reduce your capacity further.

In practice, most self-employed borrowers can access between 60% and 75% of their available equity, depending on income strength and existing commitments. If your business income is variable or seasonal, expect the lower end of that range.

Structuring the Loan for Tax Efficiency

If you're accessing equity for business purposes, it's worth splitting your loan so the business portion sits in a separate account. This makes it straightforward to claim the interest as a business expense and avoids any confusion if you later refinance again or pay down part of the loan.

Some lenders allow you to set up multiple splits at no extra cost, while others charge a small fee for each additional account. A loan structure that separates personal use from business use will save you time at tax time and ensures you're not paying tax on deductions you're entitled to claim. Your accountant can advise on the most efficient structure for your situation, and we regularly work alongside accountants to make sure the loan setup supports your broader financial strategy.

Why Some Refinance Applications Get Declined

The most common reason refinance applications for business equity release get declined is insufficient demonstrated income. If your most recent tax return shows a significant drop in income, or if your business has only been operating for a short period, lenders will either decline the application or offer a lower amount than you requested.

Another common issue is the property valuation coming in below expectations. If you estimated your property is worth $2,000,000 but the lender's valuer assesses it at $1,850,000, your available equity shrinks immediately. In suburbs like Woollahra and Paddington, where house stock varies widely in condition and configuration, valuation variance is common. Having a recent loan health check before applying helps avoid surprises.

Finally, some lenders simply don't approve equity release for business purposes, particularly if the business is high-risk or outside their preferred industries. Knowing which lenders will consider your application before you apply saves time and protects your credit file from unnecessary enquiries.

Refinancing to access equity for business is a practical option if your income is strong, your property has grown in value, and the funds will generate a return higher than the cost of borrowing. It's not suitable for covering short-term cashflow gaps or speculative ventures, but for established businesses with a clear growth plan, it's one of the lowest-cost funding options available. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions