Business loan or home equity? Our verdict on funding the business from your house

Using home equity means borrowing against the value of your house above what you owe on it, usually by topping up your home loan. A business loan is credit taken out for the business, assessed on its trading, and secured on property, other assets or nothing at all. The business loan vs home equity decision is one of the biggest an owner makes, because it decides how closely the family home is tied to the business.

What are your real options?

You have three, not two:

1. Top up or redraw your home loan. Your existing home lender increases the loan, and you use the extra for the business.
2. Take a business loan secured on your home. A business-purpose loan from a business lender, as a first mortgage or a second mortgage behind your existing home loan.
3. Borrow without the house. An unsecured business loan, a line of credit or asset finance, sized on turnover or the asset being bought.

Property is central to small business lending in Australia. The RBA’s October 2025 Bulletin reports that new loans secured by residential property are on average about four and a half times as large as other secured SME loans, and that the unsecured share of SME credit has stayed below 5 per cent in recent years. So the house is very often in the picture, especially for larger amounts. The question is how.

Side by side: three ways to fund the business

Test	Home loan top-up	Business loan secured on home	Unsecured business loan
Who lends	Your home lender	A business lender	A business lender
Assessed on	Household income and expenses	Property value and business trading	Turnover and bank statements
Cost per dollar	Often lowest	Middle	Usually highest
Business use allowed	Depends on the lender	Yes, built for it	Yes, built for it
Amount	Limited by household serviceability	$20,000 to $5,000,000	Typically $5,000 to $500,000
Records	Mixed with the mortgage unless split	Separate business debt	Separate business debt
Home at risk	Yes	Yes	Usually not mortgaged; director guarantee likely

Our verdict

Home equity wins on price per dollar, if the lender agrees. A home loan top-up is often the cheapest money available. For an established business with a modest, low-risk need, that can be hard to beat.

A business loan wins on fit and separation. It is assessed on the business, built for business purposes, and keeps the debt off the family mortgage. For bigger amounts or riskier ventures, that separation matters. Our secured vs unsecured verdict explains how much security changes what you can borrow.

Choose home equity if…

• The amount is modest relative to your equity and household income.
• The business is established and the purpose is well understood.
• Your home lender has confirmed business use is acceptable.
• You will keep the business portion in a separate split or account.
• The household could carry the repayments if the business struggled.

Choose a business loan if…

• The amount is large or the venture carries real risk.
• You want the debt in the company’s or trust’s name.
• Your household income wouldn’t satisfy a home lender for the full amount.
• You need it settled on a business timeline, such as a purchase or a tax deadline.
• You’d rather keep the home loan untouched and use a second mortgage, or no property at all.

If you own property, our verdict on the best loan when you own property sets out every option in detail. And you can check what you’d qualify for with or without the house in it.

Illustrative example: $150,000 for a second clinic

Illustrative only. Round numbers, no real business.

A physiotherapist owns a home worth about $1,100,000 with $400,000 owing. She wants $150,000 to fit out a second clinic.

• Home loan top-up: her lender assesses household income and agrees, provided the business purpose is declared. The funds go into a separate split. The cost per dollar is low, but her home now backs a new, unproven clinic, and repayments come from the household budget if the clinic is slow to build.
• Second mortgage business loan: a business lender assesses the clinic’s trading and takes a second mortgage behind her home loan. The cost per dollar is higher, but the debt sits with the business and her home loan is untouched.
• Unsecured plus equipment finance: the fit-out is split, with equipment on asset finance and the rest as an unsecured business loan sized on her existing clinic’s turnover. No mortgage over the house, but a higher cost per dollar and shorter terms.

Her verdict: because the first clinic is strong and the amount is a modest share of her equity, she takes the top-up with a separate split. A first-time owner with a less certain plan might reasonably choose the business loan instead.

What does the ATO care about?

The use of the money, not the type of loan. The ATO lists interest on money borrowed for producing assessable income as a deductible business expense, and only the business portion counts where use is mixed. The ATO also suggests a separate bank account for business expenses and good records of money moving between you and the business. Keeping the business borrowing in its own split or loan makes the deduction far easier to support.

Questions to ask your home lender first

Before assuming a top-up is available, put these to your lender in writing:

1. Do you allow home loan funds to be used for business purposes, and how do you assess that?
2. Can the business amount sit in a separate split or loan account?
3. Will you reassess our whole household budget, and how long will that take?
4. What fees apply to the increase, and will it change the pricing on the existing loan?
5. Is there any restriction on redrawing for business use later?

The answers often decide the question for you.

When is a second mortgage better than a top-up?

When your home lender won’t allow business use, can’t move fast enough, or would need to reassess your whole household budget. A second mortgage leaves the first loan alone and is assessed on the property and the business. It usually costs more per dollar, but it can be arranged without disturbing your home loan. Our explainer on second mortgage business loans covers how it works, and for very short needs see caveat loans.

Prefer to keep the house out of it?

That’s often possible for trading businesses. Our verdict on the best unsecured business loans explains the strongest structures that don’t need a mortgage.

For the remaining big choices, such as bank or non-bank and fixed or variable, see our head-to-head verdicts.

Ready to see your options side by side?

The best route depends on the amount, the risk and how much of your home you’re prepared to put behind the business. Find out what your business could qualify for by telling us the amount, the purpose and the property position.

Making that first enquiry won’t trigger a credit check. You won’t be passed along a chain of lenders; one specialist owns your file and calls you to talk through all three routes. Please give accurate figures for your property and existing loans, so the comparison you get back is a real one.