Quick answer
A second mortgage on commercial property can be sensible when the borrowing has a clear exit and the premises have a healthy cushion of equity. The catch is that if the business struggles, the loan and the place you trade from fail together. Commercial property is usually lent against more conservatively than a house, so the amount available is often smaller. Compare it with using the home, and with not borrowing at all, before you decide.
Key points
- Premises as security keep the family home out of it, but link the loan and the business's address.
- If trading fails, you can lose the income and the building in the same year.
- Commercial property is usually assessed at lower combined LVRs than a house.
- Vacancy and lease terms matter: the office market is soft while industrial and retail are tight.
- A related-party lease and a clear fallback should be settled before you borrow.
- Sometimes the right answer is the house, a smaller step, or not borrowing.
You own the shop, the clinic or the warehouse your business runs from. The business needs funding, and the building has equity sitting in it. The house has more, but it’s where the kids sleep. So the natural thought is: use the premises instead.
It’s a reasonable thought. It’s also a different risk from the one most owners imagine. This guide helps you decide whether to borrow against the premises, use the home, or do neither.
What’s different about borrowing against the place you trade from?
With the family home, the worry is plain: your family lives there. With your premises, the worry is quieter. The loan and the business depend on the same thing, so they can fail together.
Think about how a bad year plays out. Takings fall, repayments are harder, and the business is under pressure. If the premises are the security, a lender who has to act is acting against the building you trade from. You can lose the income and the address in the same season, with no fallback location and no sale proceeds to pivot with.
That’s not a reason to say no. It’s a reason to treat the premises as a serious choice rather than a “safe” default. A short list worth working through:
- Would losing this property end the business, or just disrupt it? A purpose-built clinic is very different from a generic unit you could move out of.
- Could the business relocate and keep trading? If so, the exposure is smaller.
- Does the property carry more than one job? Some owners hold their retirement in the building too.
Our which property should secure the loan page sets out the broader comparison. This guide goes deeper on the premises case. If you’d like a straight read on yours, send a short enquiry and a specialist will look at it.
How much equity is realistically available?
Less than the same value in a house. Commercial property usually takes longer to sell, has a smaller pool of buyers, and its value rests on the lease and the location. Lenders reflect that with lower combined LVRs, so the planning bands we use here are 50, 60 and 70% for commercial property, against 60, 70 and 80% for residential.
Here’s the same pair of properties, illustrative only:
| Family home | Business premises | |
|---|---|---|
| Value | $1,100,000 | $1,100,000 |
| Owed now | $450,000 | $450,000 |
| Combined LVR at the middle band | 70% | 60% |
| Total debt allowed at that band | $770,000 | $660,000 |
| Room for a second mortgage | $320,000 | $210,000 |
Illustrative only. Real amounts depend on a valuation, the lender and your circumstances.
Same value, same debt, but about $110,000 less room on the premises. And the figure above is the ceiling, not the target. The sensible number is the one that still leaves a cushion if the valuation comes in lower. Try your own numbers in the equity decision helper, which applies the commercial bands for you.
Does the type of property change the answer?
Yes, and right now the market is uneven. That’s worth knowing before you count on a headline value.
- Offices are the soft spot. CreditorWatch figures reported by Mortgage Professional Australia in April 2026 put national office vacancy at about 15.9%, with Melbourne’s CBD around 19%. Lower-grade buildings are described as especially challenged.
- Industrial is the reverse. The same report describes national industrial vacancy as exceptionally low, roughly 2 to 3%.
- Retail is tight in shopping centres. JLL research, reported in a July 2026 CommBank newsroom article, has shopping centre vacancy at 4.4%, the lowest since 2018. That’s centres, not every street-front shop, so check your own pocket.
Why it matters to you: if your premises are a mid-grade office in a soft market, a conservative lender may value it cautiously, and your cushion shrinks. If you own an industrial unit in a tight market, there’s usually more comfort. Either way, these are market-wide figures, not your valuation. Ask your agent or valuer how your own property type and suburb are tracking.
What about the lease, if your business is the tenant?
Many owners hold the property personally or in a trust, and the operating business pays rent to it. That’s tidy for tax and asset protection, but it creates a question a lender will ask: is the rent real?
Lenders can’t lean on your business paying rent to itself the way they would on an arm’s-length tenant. So the position of the lease, the rent level and who owns what can all matter.
Settle these before you borrow:
- Is there a written lease, with market rent and a sensible term?
- Who owns the property: you, a company, a trust, or a partner? Everyone with an interest has to be on board. If a trust or company holds the title, the trustee or directors make the call, which is a separate decision for them.
- What happens to the lease if the property has to be sold? A buyer might want vacant possession, or might want you as a tenant.
Your accountant and solicitor are the right people for this, and our list of questions to ask your accountant is a good starting point.
Premises, house, or neither: which is more sensible?
| Situation | Premises can make sense | Think again |
|---|---|---|
| A defined need with a clear exit (a contract, a fit-out, a stock build) | Yes, with a healthy cushion | If the cushion would be thin on a cautious valuation |
| The business is the only tenant and is under pressure | Rarely | Losing the loan and the address together |
| Premises are generic and easy to relocate from | Yes | If the market for that property type is soft |
| The home has far more equity | Possibly, but compare honestly | Using the home puts the family at risk |
| The need is small and short | Often neither | Unsecured options or the business’s own cash flow may do the job |
| You’d rather release the full value | A sale and leaseback is worth a look | You give up the asset and pay rent |
If the business needs working capital rather than a one-off project, the line of credit alternative is worth comparing, and selling an asset is the honest alternative when part of the property isn’t earning its keep.
What does a sale and leaseback change?
A sale and leaseback means selling the premises to an investor and renting them back. You release the full equity, not just a slice, and the business stays put. The price is that the asset leaves your balance sheet, and rent becomes a permanent cost.
It can suit an owner who’s retiring, or one who wants out of property ownership. It’s less suitable if the building is a long-term store of wealth. Because it’s a sale, capital gains tax can apply, and the ATO’s small business CGT concessions may be relevant if you qualify. Get tax advice on this before you decide, since the timing and structure change the outcome.
What’s your fallback if it doesn’t go to plan?
Write it down before you sign. A premises-secured loan needs an exit that doesn’t depend on the premises:
- A refinance checkpoint, such as 12 months in, once the project has earned its keep.
- A repayment source that isn’t “the business does better”, such as a contract’s progress payments.
- A smaller step, such as drawing part of the amount first, if the plan has several stages.
- A relocation plan if the building has to be sold.
Our exit plan guide and the exit plan checklist walk through each. And if repayments ever get tight, talk to the lender early. The Small Business Debt Helpline offers free, independent help, and business.gov.au explains the options.
A worked example (illustrative only)
Sam owns a small warehouse unit worth $1,000,000 that the family’s packaging business rents from the family trust. A first mortgage of $350,000 is outstanding. A large supply contract needs $180,000 of new machinery and stock.
Option A: the unit. At a 60% combined LVR the ceiling is $600,000, so $180,000 on top of $350,000 is $530,000, or 53%. It fits, but the cushion to the band is only $70,000. If a cautious valuation came in at $900,000, the same debt would be about 59%, close to the line. The industrial market is tight, which helps, but the contract is the only repayment source.
Option B: the house. The home has plenty of equity. But it puts the family at risk for a business-only need, and the co-owner would have to agree.
Option C: stage it. Sam borrows $120,000 against the unit for the machinery, and funds the stock from the contract’s deposit and supplier terms. Combined debt is $470,000, or 47%, a more comfortable cushion. The exit is a refinance after the contract’s first 12 months of payments.
Option C costs a little more effort, but it keeps both the unit and the house safer. There’s no right answer. The point is to choose on purpose.
Is a second mortgage on your premises the right call?
Borrowing against the building you trade from can be a calm, sensible move. It keeps the family home out of it, and it matches the loan to the business. It works best when the need is defined, the cushion is real, the lease is settled, and the exit doesn’t depend on a miracle.
If you’re weighing it up, we’re happy to talk it through with you. Tell us about the property, who’s on the title, what’s owing, how much you need and what for, and a real person will look at your whole picture and call you. If the honest answer is “use something else”, or “borrow less”, you’ll hear that.
Asking takes about a minute, and there’s no credit check when you first enquire, so your credit file isn’t touched just for finding out where you stand. Your details stay with one specialist rather than going out to a pile of lenders, so you won’t get a string of calls from strangers. Please fill in the form accurately: the property’s value and type, what’s owed, who’s on the title and the lease, the amount, the purpose and how you’d repay it. That way we can point you to the right option first time. Business purposes only.
Frequently asked questions
Can I get a second mortgage on commercial property I own?
Often, yes, if there is enough equity left after the first mortgage. Property-secured business loans on residential or commercial property run from $20,000 to $5,000,000. The more useful question is whether you should, which depends on your cushion, the lease position and your exit.
Is it safer to use my commercial property than my home?
For the household, usually, because your family isn't living in it. For the business, not necessarily. If the business fails, you can lose the income and the premises together, so it needs the same exit planning as any other borrowing.
How much can I borrow against commercial property?
Less than a house of the same value, in most cases, because commercial property takes longer to sell and has fewer buyers. Our planning bands use 50, 60 and 70% combined LVR for commercial property against 60, 70 and 80% for residential. The equity decision helper shows both.
Does it matter if my own business is the tenant?
Yes. A lender can't rely on your business paying rent to itself, so the position of the lease, and who really owns the property, will be part of the assessment. Settle the lease terms with your accountant and solicitor before you borrow.
What if the premises are in an office-heavy market?
Be more careful with the cushion. CreditorWatch figures reported in April 2026 had national office vacancy around 15.9%, well above industrial and retail. A weaker market for your type of property is a good reason to borrow less.
Is a sale and leaseback better than a second mortgage?
It can be, if you'd rather release the whole value than borrow against it and you're comfortable paying rent on a building you used to own. It's a bigger decision because you give up the asset. Take advice, including on capital gains tax, before choosing it.
Can I use a second mortgage for personal costs?
No. We deal in business purposes only. A business-purpose loan should be used for the business, and your accountant can confirm how that affects tax.
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