Quitting your job to start a business: should you line up home equity first?

You’ve done the sums on the back of an envelope, the side gig is busy, and the resignation letter is half-written. Then a friend says, “Whatever you do, get your loan sorted before you quit. Banks love a payslip.” It sounds like smart advice. Sometimes it is. But it skips the two questions that actually decide whether it’s a good idea: what you’ll tell the lender, and how the household copes once the salary stops.

This guide walks through that decision calmly, in the order we’d want a friend to think about it.

Why does everyone say “borrow before you resign”?

Because, on paper, it’s true that a salary is easy to assess. Payslips are simple to verify and income is regular. Once you’re self-employed, many mainstream lenders want to see tax returns and financial statements over a period of trading before they’ll count your business income.

So the instinct is to top up the home loan while you still look like a low-risk employee, then use the money to launch. The trouble is what that instinct leaves out.

What’s the honesty trap with a pre-resignation top-up?

Lenders ask about your income and whether you expect your circumstances to change. If you’ve already decided to resign, the honest answer is yes. A lender who knows your salary is about to stop will assess the loan very differently, and may not approve it on those terms.

Some people are tempted to stay quiet, or to describe the money as being for renovations. Please don’t. A loan obtained on information you knew was misleading can come back to bite at exactly the wrong moment, and the property behind it is your home. If equity is going to fund the business, the lender should know that’s the plan.

There’s a second honesty point too: telling your spouse or co-owner. Everyone on the title signs, and everyone should understand that the household income is about to change. Our guide to talking it through with a co-owner has a gentle way to start that conversation.

What’s the real risk when the pay stops?

It’s rarely the new borrowing on its own. It’s the home loan you already have.

While you’re employed, your salary pays the mortgage without anyone thinking about it. Once you resign, that repayment still falls due every month, and in the early months a new business often pays the owner very little. Add a second loan on top, and the household is now carrying two property-secured debts on an income that’s uncertain.

That’s why the starting question isn’t “how much equity can I get?” It’s “how will we pay the existing home loan for the first six to twelve months if the business pays us little or nothing?”

How much does the business actually need?

business.gov.au describes start-up costs as “everything you need to pay before your business starts generating income”, and suggests working out running costs for the first six months as well, then checking the figures with an accountant. Its funding guide also notes that lenders “will expect some self-funding” before they offer finance.

Build three separate numbers:

Bucket	What goes in it	Where it should come from
Household runway	Home loan repayments, bills, groceries, insurance, school costs for at least three months	Personal cash savings
Start-up costs	Equipment, fit-out, stock, bonds, registrations, website, initial marketing	Savings first, then specific finance
Business running costs	Six months of rent, software, vehicle, insurance, supplies before income steadies	Savings, early revenue, or a defined facility

Moneysmart suggests an emergency fund big enough to cover three months of expenses. For someone leaving a salary, treat that as the floor for the household runway, not the goal.

Keep the household runway in cash. Equity borrowed for the business should be used for the business, with its own paper trail, rather than quietly propping up the family budget.

Which option fits which situation?

There isn’t one right answer. Here’s how the common choices compare for someone about to leave a job.

Option	Works well when	Watch out for
Savings and side income first	Start-up costs are modest and you can keep some paid work for a while	It can be slower, which isn’t always a bad thing
Top up the home loan before resigning	You’ve disclosed the plan, the household can carry the higher loan without your salary, and the purpose is clear	Mixing business debt into the family home loan; repayments due immediately
Business-purpose second mortgage once trading	You have a specific purpose (equipment, fit-out, stock, a contract) and a clear exit	It’s another loan against the property; needs a real repayment plan
Equipment finance	The main cost is a vehicle, machine or tools	The asset may need to suit the lender; deposit requirements vary
Unsecured business loan	The business has trading history and steady bank statements	Usually needs months of trading before it’s an option

If you’re unsure whether to keep property out of it altogether, our page on funding it from cash flow covers when waiting, or freeing up cash, beats borrowing.

Not sure where you’d land? You can send a short enquiry and a specialist will tell you honestly what looks sensible, with no credit check when you first ask.

Is borrowing after you start trading really an option?

It can be. Lenders who specialise in business-purpose loans secured on property tend to look harder at the equity, the purpose and how the loan will be repaid, and put less weight on years of trading history. That doesn’t make approval automatic. They still need to see how repayments will be met, and a brand-new business with no income and no exit is a tough case anywhere.

But it does mean you don’t have to rush into borrowing before you resign “just in case”. Borrowing for a specific purpose, at the point you actually need it, is usually more sensible than drawing a large general buffer up front and watching it slowly disappear.

A worked example (illustrative only)

Sam is a qualified carpenter employed by a builder, planning to go out on their own. Sam and their partner own a home worth about $900,000 with $380,000 owing on the home loan.

The tempting plan: top up the home loan by $150,000 before resigning, “to be safe”.

The calmer plan, after doing the three buckets:

• Household runway: they hold four months of living costs, including home loan repayments, in savings. They agree Sam’s partner’s income covers most of the basics.
• Start-up costs: a ute, tools and insurance come to around $70,000. Sam already owns some tools, and the ute could be financed on its own.
• Running costs: with work already lined up through two builders, six months of costs look manageable from early invoices plus $20,000 of savings.

At the moment, the property-secured need is closer to $40,000 than $150,000, and it isn’t needed until Sam wins a larger job that needs materials up front.

Equity check: at a 70% combined LVR band, usable equity is about $630,000 less $380,000, or $250,000. Borrowing $40,000 later would put the combined LVR at about 47%, leaving a large cushion. Borrowing $150,000 up front would push it to about 59% and add a loan the household has to service from day one, before the business has earned a dollar.

Sam and their partner decide to resign with savings in place, finance the ute separately and, if the larger job lands, look at a defined business-purpose loan with a clear exit: repayment from the job’s progress payments.

You can run your own numbers through the equity decision helper, which shows usable equity at common bands and checks your cushion.

What does the bigger picture say about new businesses?

Starting a business is common in Australia. The ABS counted 2,814,778 actively trading businesses at 30 June 2026, with 460,461 businesses entering and 375,331 exiting during 2025–26. Plenty of businesses start every year, and plenty close.

That isn’t a reason not to start. It’s a reason to build a plan where, if the business needs longer than expected, the family home isn’t the thing that gives way. Our guide to stress-testing your plan before you borrow shows how to test a “slower start” scenario in an afternoon.

A simple order to do it in

1. Cost the three buckets and have your accountant check them.
2. Fund the household runway in cash before you resign.
3. Talk to everyone on the title about the change in income and the plan.
4. Use the cheapest, least risky source first: savings, early revenue, finance on specific assets.
5. Only then decide whether home equity fills a specific gap, how much, and how it gets repaid. Our page on building an exit plan helps with that last part.
6. Be completely open with any lender about your plans, your income and the purpose.

If you work through those steps and the answer is “we don’t need to borrow against the house”, that’s a great outcome. If the answer is “yes, but later and for something specific”, that’s usually a safer place to start than borrowing heavily on your last payslip. Our overview of whether to use your house at all is a good next read.

Starting out? Get a straight answer before you hand in your notice

Leaving a salary to back yourself is a big, exciting step, and it’s natural to want a safety net in place first. We’d rather help you build the right one than the biggest one. We work with people starting and growing businesses who own property, and we’re comfortable telling you when equity is the wrong tool or the wrong time.

The enquiry takes about a minute and there’s no credit check when you first enquire. It goes to one specialist, not out to a pile of lenders, so you won’t be fielding calls from strangers. A real person will look at your plan and call you to talk it through. Please fill the form in accurately: what the property is worth, what’s owing, who’s on the title, how much the business needs, what for, and how you’d repay it. Business purposes only.

See if equity makes sense for my new business →