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A second mortgage lets a company or trust raise capital against equity without touching a first mortgage that may be on excellent terms. Because the lender sits behind someone else, its assessment is about what happens if things go wrong as much as about the business going right.
1. Combined LVR
Add the first mortgage balance to the proposed second mortgage and divide by the property value. Indicatively, lenders go up to around 75% on strong metropolitan security, lower on regional, specialised or vacant property. If the first mortgage has a redraw or an undrawn limit, the lender counts the limit, not the balance, unless a deed of priority caps it. A worked example is in how much can I borrow on a second mortgage.
2. The first mortgage
A statement showing the balance, limit, rate and repayment history. Arrears on the first mortgage are the biggest red flag in the file, because the first mortgagee could enforce and control the sale. The lender will also want to know whether the first mortgagee will consent.
3. The security
Type, location, condition, tenancy and saleability. A tenanted industrial unit in a capital city is ideal. A specialised asset in a small town is not. A valuation is almost always required.
4. Business purpose
The funds must be wholly or predominantly for business or investment use, confirmed by a business purpose declaration. Working capital, tax debt, stock, acquisitions, buyouts, deposits and fit-outs all qualify. See what is a business-purpose declaration.
5. The exit
How the loan is repaid at the end of 6, 12 or 24 months: a refinance of both loans into one, a sale of this or another asset, or an identified inflow. Where interest is paid monthly, the lender will also want comfort the business can meet it, which is where BAS or bank statements come in.
What carries less weight
Credit score, years in business and full tax returns. They inform the picture but do not decide it. This is why a second mortgage is often available when a bank top-up has been declined. The instrument itself is covered on the second mortgages page.
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Get matched with a funderFAQ
Do I need tax returns for a business second mortgage?
Often not in full. Many are written on lighter evidence such as recent BAS, bank statements or an accountant's letter, particularly where the exit is a sale or refinance.
Does the first mortgage have to be with a bank?
No. It can be a bank, non-bank or private lender. What matters is the balance, the rate, whether it is up to date and whether that lender will consent.
Can I make monthly interest payments?
Yes, on longer terms interest is often paid monthly. On shorter terms it is commonly prepaid or capitalised.