For many New Zealand business owners, the biggest asset they own is the house they live in. When the business needs money and the bank wants two years of tidy accounts, the equity in that house starts to look like the obvious answer.
It can be. Plenty of businesses have been started, saved or grown with a loan secured on the owner’s home. But a business loan secured on your home is a different thing from a home loan, and the differences matter most on the day something goes wrong. This guide sets out what changes, who needs to agree, and the questions to answer first. It is general information, not legal, tax or financial advice. A lawyer and an accountant who know your situation should check any plan before you sign.
What to do this week, before you offer the house
- Write down the real need. The amount, what it pays for, the date the money is needed and how it will be repaid: business cash flow, a sale, a later refinance or a debtor who will pay. If you can’t fill in the repayment line, stop there and talk to your accountant.
- Check who owns the home. Buy a copy of the record of title through LINZ Land Record Search. It shows the owners and other interest holders recorded on the title. Everyone on the title will usually need to sign the mortgage. If a family trust owns the house, the trustees decide, and under the Trusts Act 2019 trustees must act unanimously unless the trust’s terms say otherwise.
- Find your existing mortgage terms. Many home loans restrict further borrowing secured on the property. Our guide on whether your bank has to agree to a second mortgage explains where to look and how to ask.
- Have the conversation at home. If your partner or family lives in the house, they carry the risk too, whether or not their name is on the title. Talk it through before a lender is involved, and ask your lawyer whether anyone else has an interest in the property.
- Stress-test the numbers. Business.govt.nz suggests a cash-flow forecast that understates income and overstates costs, and says you should be confident you can pay on time, every time. If the plan only works when everything goes right, it isn’t ready.
Where HomeSec fits
HomeSec is a direct, open-term lender of business loans secured by New Zealand real estate. That real estate can be residential or commercial, and it can belong to the business or to its owners, which includes the family home. We lend $20,000 to $1,000,000, and only for genuine business purposes. We don’t offer home loans or personal loans, and we won’t lend against your house to fund personal spending.
Because we are the lender, not a broker, the questions in this guide are the questions we ask on the first call: who owns the property, what is owing on it, what the business needs and how the loan will be repaid. Funds can be available in as little as 24 hours once the scenario is complete and the security is acceptable. Approved facilities can offer up to six months with no scheduled payments, although interest and fees can continue to accrue. Approval is never automatic. If borrowing against your home looks like the wrong move for your situation, we would rather say so early. You can read more about how our property-secured business loans and second mortgages work.
What changes when your home is the security
Consumer credit protections mostly fall away. The Credit Contracts and Consumer Finance Act is built around lending for personal use. Consumer Protection explains that for business or investment lending, the only part of the Act that applies is the protection against oppressive behaviour. The security being your home doesn’t change the purpose. A business loan secured on your house is still a business loan, so read the contract as a business contract, with a lawyer beside you.
Guarantees can reach further than you expect. When a company borrows, lenders often ask the directors to guarantee the loan personally. The Insolvency and Trustee Service puts it simply: a company is generally responsible for its own debts, but if you have personally guaranteed them, you are responsible if the company can’t pay. Consumer Protection’s guarantor guidance also warns about “all obligations” guarantees, which can cover all of a borrower’s debts with that lender, now and in the future. Ask exactly what you are guaranteeing.
If the loan isn’t repaid, the house can be sold. A mortgage gives the lender the right to sell the property if the loan is in default. The Property Law Act 2007 controls how that happens. Section 119 requires the lender to give the owner formal notice before it exercises its powers, and section 176 sets out the duty a lender owes when it sells. If a sale doesn’t clear the debt, section 122 deals with the notice a lender must give if it intends to recover the shortfall. A mortgagee sale is a last resort for everyone, and the time to act is long before it. Citizens Advice Bureau advises talking to your lender as soon as you think you will have trouble with repayments.
A one-off need or a structural problem?
A loan secured on your home suits a defined need with a clear end: an IRD balance that would otherwise grow, stock for a confirmed order, a piece of equipment that will earn its keep, or a gap until a property sale or refinance settles. You can name the amount, the use and the date it will be repaid.
It suits much less well when the business has lost money for several months and the loan would cover the losses, when sales are falling and no one can say why, or when this is the second or third time the business has needed rescuing. Then a loan on the house doesn’t fix the business. It turns a business problem into a household one. Our guide to how property equity may support a business loan sets out why the equity available to borrow is usually less than the house’s value minus the mortgage, which is worth knowing before you plan around it.
Who to talk to first
- Your accountant, to test whether the business can carry the repayments and what happens if trading is slower than forecast. Business.govt.nz notes that an accountant or bookkeeper can help you decide whether a loan is a good idea.
- A lawyer, for independent legal advice on the loan contract, any guarantee and the mortgage. Consumer Protection suggests a Community Law Centre if cost is a barrier. If more than one person owns the house, each should understand what they are signing.
- A business adviser. Business.govt.nz points owners to the Regional Business Partner Network for local advice, and suggests showing any funder your plan, the risks and your fallback.
- An insolvency practitioner, if the company can’t pay its debts as they fall due. The Insolvency and Trustee Service warns that directors can be made responsible for company debts if they keep trading after the company becomes insolvent. Get advice before adding property-secured debt in that position.
When borrowing against your home is not the answer
Don’t put the house up if:
- the business is losing money each month and the loan only pays for more time
- the repayment plan depends on a sale, contract or refinance that hasn’t been agreed
- someone who lives in the house, or owns part of it, doesn’t understand or agree with the decision
- there is no fallback if the plan runs late, such as another asset to sell or a way to cut costs
- an arrangement with IRD, a supplier or a customer would solve the problem at lower cost and lower risk
Saying no to a loan on your home is not a failure. Sometimes it is the decision that protects the business and the household.
A useful first conversation
Tell us who owns the home, its estimated value, what is owing on it, how much the business needs, what it is for and how you plan to repay it. That is enough for us to tell you whether a business loan secured on your home is workable, and whether there are questions your lawyer or accountant should answer first. See whether there is a workable funding option.
Frequently asked questions
Can I use my house as security for a business loan in NZ?
Yes. Some lenders, including HomeSec, accept residential property as security for a business-purpose loan. The loan is assessed on the property, the purpose and the repayment plan. Everyone on the title will usually need to sign, and your existing mortgage terms may require your bank’s consent.
Does my partner have to agree?
If your partner is on the record of title, they will need to sign the mortgage. Even if they aren’t, the decision affects them, so talk early. Ask a lawyer whether anyone else has an interest in the property, and make sure each owner gets independent advice.
Can a lender sell my home if the business can’t repay?
If the loan is in default, a mortgage lets the lender sell the property, but the Property Law Act requires formal notice first and sets duties the lender must meet when it sells. Talk to your lender as soon as repayments look difficult. Early conversations open more options.
Is a business loan secured on my home covered by consumer credit law?
Mostly not. The Credit Contracts and Consumer Finance Act is aimed at lending for personal use. For business lending, only its protection against oppressive behaviour applies, even when the security is your home. Read the contract carefully and get legal advice.
Can I use a house owned by my family trust?
Often, yes, but the trustees decide, not you as a beneficiary. Under the Trusts Act 2019, trustees must act unanimously unless the trust’s terms say otherwise. Ask the trust’s lawyer early, because trustee sign-off can take time.
New Zealand sources
- Consumer Protection: Credit Contracts and Consumer Finance Act
- Consumer Protection: guarantors
- Insolvency and Trustee Service: determining your type of debt
- Property Law Act 2007, s 119 and s 122
- Trusts Act 2019
- LINZ: Land Record Search
- Business.govt.nz: borrowing money
- Business.govt.nz: funding your business
- Citizens Advice Bureau: missing mortgage repayments