Should you borrow against your house after a bad year in business?

The year ended badly. Maybe a big customer left, a key person quit, a build ran over, or the quiet months ran longer than planned. Now the cash is thin, and the house is the one asset big enough to fix it. The temptation is to ask “can I borrow?” The better question is “would this money fix the problem, or just pay for another stretch of it?”

This guide gives you a calm way to answer that, one decision at a time. It’s about business-purpose borrowing only.

Was it a bad year, or the start of a trend?

Everything else depends on this, so start here. Pull the last three years of profit and loss and the last six to twelve months of monthly results, and sort the year into one of three buckets.

Pattern	What it usually looks like	What it points to
One-off	A named cause (lost contract, delayed project, a flood, a one-time cost). Margins are normal outside that event. Recent months are back to form.	Borrowing to rebuild can be reasonable
Slow slide	Profit falling for two or three years. Margins thinner each year. The bad year is the worst of a run.	Fix the model first; borrowing delays the problem
Structural	A product, location or customer base that no longer pays. Losses in most months.	The loan would fund losses, not recovery

Be harsh with yourself on the “named cause”. If the explanation is “everything got a bit harder”, that’s a slide, not a one-off.

Your accountant is the right person to test this with. Take them the monthly numbers and ask one question: “If the cause I’ve named hadn’t happened, would we have made money?” If the honest answer is yes, you’re in one-off territory.

What would the borrowed money actually do?

Lenders ask what the money is for. You should ask it harder. Money that fixes a cause behaves very differently from money that covers a symptom.

Money that fixes a cause looks like:

• Replacing the stock or equipment that was lost or failed.
• Funding a signed contract or a rebuilt customer pipeline that has real, dated work behind it.
• Clearing a one-time debt that is draining cash every month, when the underlying business is profitable again.

Money that covers a symptom looks like:

• Paying wages and rent because sales haven’t recovered.
• Catching up suppliers who are already chasing you.
• Topping up the account so the next BAS or payroll can go out, with no change to what comes in.

If the loan is mostly the second kind, the same problem is back in six months, now with the family home behind it. That’s the “good money after bad” trap, and it’s worth naming plainly.

What do the warning signs say?

ASIC, writing in June 2026 to small business directors, set out the signs that should prompt early action rather than avoidance: growing cash flow pressure, overdue tax or superannuation, unpaid suppliers, and relying on personal funds to keep the business running. business.gov.au’s list of warning signs covers similar ground.

Use that as a checklist against your own business today:

• Are you paying some suppliers late, or moving to cash on delivery with others?
• Is any tax or super overdue?
• Have you put your own savings or credit cards into the business in the last year?
• Are you regularly waiting on a customer payment before you can make payroll?

One “yes” after a bad year isn’t unusual. Three or four is a signal to stop and talk to someone independent before anything is secured against your home. ASIC’s message is that financial difficulty “should prompt early action, not avoidance”, and that applies just as much to a sole trader or partnership deciding whether to borrow as it does to a company director.

The Small Business Debt Helpline is free and confidential, and it’s a sensible second opinion if you’re unsure which side of the line you’re on. It costs nothing to ask.

What does the cushion look like after borrowing?

Say the house is worth $1.2 million, the home loan is $500,000, and the business needs $150,000 to rebuild after a one-off loss. This is illustrative only, with round numbers.

Combined-LVR band	Total debt allowed on the home	Room left after $150,000
60%	$720,000	$70,000
70%	$840,000	$190,000
80%	$960,000	$310,000

Borrowing to the full 80% would leave the home heavily geared, and a 10% fall in value would erase a lot of that cushion. Staying near 60% to 70% with a recovery plan that works under a bad case is a far calmer position. The equity decision helper lets you run your own figures.

If you’d like a second pair of eyes on yours, you can check your options here. Enquiring takes about a minute and doesn’t involve a credit check.

What are the smaller steps to try first?

A bad year rarely needs the biggest tool first. In rough order of how much risk they put on the family home:

1. Cut and renegotiate. Costs, rent, supplier terms. It’s slow and unglamorous, but it carries no security.
2. Fund it from cash flow. A tighter budget and staged recovery, covered in funding from cash flow.
3. Unsecured finance. For some trading businesses, an unsecured loan sized on turnover keeps property out of it.
4. Sell something that isn’t working. Spare equipment, stock or a vehicle. See selling an asset.
5. A smaller secured amount, with a plan. Only the sum that fixes the cause, with an exit written down first. The exit plan checklist helps.

If an ATO debt came out of the bad year, note the change from 1 July 2025: the ATO says it no longer allows a deduction for general interest charge on amounts incurred from that date. That raises the after-tax cost of leaving a debt unpaid, so it’s worth comparing options properly with your accountant, as the GIC guide explains. A payment plan can still win for a smaller debt.

When is “not this” the right answer?

Sometimes the most useful answer is no. Pause before borrowing against the home if:

• the business has made losses in most months for a year or more;
• there is no named cause you can fix with money;
• the loan would mainly fund wages, rent or overdue obligations;
• your spouse or co-owner on the title hasn’t had a proper conversation about the risk (see talking to co-owners);
• the only exit is “the business will recover”.

In those cases an orderly step down, a restructure or a planned wind-down protects the family home better than another round of borrowing. A registered liquidator, accountant or lawyer can lay out those paths, and early advice keeps more of them open. The when not to page covers this in more depth.

A simple order to follow

1. Sort the year: one-off, slide or structural.
2. Write down what the money will fix and how you’d know it worked.
3. Run the warning-sign checklist honestly.
4. Test the plan against a worse case, as in the stress-testing guide.
5. Check the cushion at 60% to 70% combined LVR.
6. Talk to your accountant and everyone on the title.
7. Decide, and write the exit down before you sign anything.

Want to see where you stand?

A bad year doesn’t mean the answer is no, and it doesn’t mean the answer is yes. It means the answer is worth getting right. If you’ve worked through the steps above and the numbers point to a one-off you can fix, it’s worth finding out what your property could safely support.

Our enquiry takes about a minute, and there’s no credit check when you first enquire, so asking won’t touch your credit file. Your details go to one specialist rather than being passed around a list of lenders, so your phone won’t start ringing with strangers. A real person looks at your situation and calls you, and if a second mortgage isn’t the sensible move, they’ll tell you that and point you to what might work better. To make that call useful, please fill the form in accurately: property value, what’s owed, who’s on the title, the amount, the purpose and your exit.

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