Common Mistakes When Refinancing to Fund Your Business

Using the equity in your home to fund your business is a big decision, and the way you set up the loan matters as much as the amount you borrow. At Roar Financial we sit down with business owners who want to grow, and the same few mistakes come up again and again. Here is how to avoid them.

What Does It Mean to Refinance to Access Equity for Business?

Refinancing to access equity means replacing your current home loan with a new one for a higher amount, then using the extra funds in your business. The extra amount is secured by your home, so it is only available if your property is worth enough to support the larger loan.

A lender will arrange a property valuation to decide how much you can borrow. They will also look at your income, your business earnings and your existing debts. You can read more about how refinancing your home loan works on our refinancing page, or check what you may be able to borrow with our borrowing capacity tools.

Mistake One: Borrowing a Single Lump Sum Without Splitting the Loan

Putting your business funds into one big home loan makes the debt harder to manage. A separate loan split for the business portion lets you see, repay and review that money on its own.

Consider a Tasmanian cafe owner who needs $100,000 for a new fit-out and kitchen upgrades. She could top up her existing loan, and the extra money would disappear into one balance. Instead, her broker sets up the $100,000 as its own split. At an illustrative rate of 6.75% p.a. over 25 years, principal and interest repayments on that split come to about $691 a month. Interest-only at the same rate would be about $563 a month, but the balance would not fall.

She chooses principal and interest and plans to make extra repayments in her busier months. The result is a business loan portion she can see clearly, with a balance that drops over time. The trade-off is a higher monthly repayment, so she checks it against her business cashflow first. A separate split also makes record keeping clearer for her accountant. Tax treatment depends on your own situation, so speak with your accountant before you borrow.

Why Do Business Owners Overlook the Loan Term?

Stretching a business borrowing over the full home loan term lowers your repayments but means you pay interest for much longer. Equipment and fit-outs wear out well before a 25 or 30 year loan ends.

If the money buys something that will last five or ten years, it makes sense to repay that part faster. Splitting the loan, as in the cafe example, gives you that choice. You can test different terms with our mortgage repayment calculator before you commit.

Is Your Home Loan the Right Tool for Business Funding?

A home loan is often a lower-cost way to fund a business than other finance, but it puts your home on the line. If the business struggles, the debt is still secured against the place you live.

For some purchases, a different product suits better. Vehicles and machinery can often be funded through equipment finance, which keeps the debt tied to the asset. Larger or ongoing needs may suit business loans. We talk through these options with you before recommending anything, because the cheapest-looking rate is not always the right fit for your situation.

Refinance Application Mistakes That Slow Things Down

Delays can happen when the numbers in your application don't line up. Lenders want to see that the reason for the funds, your income and your business earnings all line up.

Business owners are often asked for tax returns, financial statements and details of any business debts. If your accounts are behind or your income has changed recently, tell your broker early. We can work out which lenders are more comfortable with self-employed income before you apply, which can avoid a declined application and the extra credit enquiries that come with applying to several lenders.

How Does Fixed Rate Expiry Affect Your Equity Plans?

If your fixed rate period is ending, it is a natural time to review your loan and consider releasing equity. Breaking a fixed rate early can bring break costs, so timing the refinance around your expiry date can protect you from an unexpected bill.

Our fixed rate expiry page explains what to expect when your rate rolls over. Lenders also change what they offer from time to time, so it is worth comparing your options well before the date arrives rather than leaving it to the last week.

Forgetting the Costs of Switching Lenders

Refinancing can come with discharge fees, application fees and valuation costs, and a larger loan means more interest over time. These costs need to be weighed against what you gain, whether that is access to funds, a lower interest rate or features that suit your business.

If you stay with your current lender, a top-up may be cheaper, but their rate and policies may not suit you. A loan health check compares your current loan with what else is available, so you can see the real cost of staying or moving. Features such as an offset account can help too, since money sitting in the account reduces the interest charged on your loan. The trade-off is that some loans with offset accounts carry higher fees or rates.

Talk It Through With Someone Who Knows Your Name

Every business and every family situation is different, and the right structure depends on your plans, your cashflow and how much risk feels comfortable. I would rather spend an hour getting to know you than rush you into a loan that does not fit.

Call us or book an appointment at a time that works for you. We will look at your equity, your goals and your business numbers together, and map out the options in plain language.