Top tips to refinance and access equity for business

Refinancing to access equity: what the structure looks like

Refinancing to release equity for business purposes replaces your existing home loan with a larger one, drawing on the accumulated equity in your property to fund commercial activity. The lender assesses your borrowing capacity, your property's current value, and the intended use of funds before approving the additional loan amount.

Consider a commercial lawyer who purchased in Mosman five years ago and now wants to establish a boutique practice with two other solicitors. The property has appreciated, and she has around 50% equity available. She refinances the existing mortgage, increases the loan amount by $200,000, and uses that capital to cover fit-out costs, initial operating expenses, and a buffer for variable billing cycles. The refinance application includes evidence of the business structure, projected income, and a clear use of funds.

The key detail to confirm early is whether the lender will assess the additional borrowing against your PAYG income or include projected business income. Most lenders want at least two years of lodged financials for a business before they factor that income into serviceability. If you are still employed as a solicitor and the business venture is new, the lender typically assesses on your salary alone.

Why commercial lawyers use this structure

Commercial lawyers often identify opportunities that require upfront capital, whether that involves equity partnerships, office relocations, technology infrastructure, or buying into existing practices. Personal savings may already be committed to other investments, and liquidating those assets may trigger capital gains tax or disrupt longer-term planning.

Releasing equity through refinancing preserves liquidity elsewhere and allows you to maintain existing investment positions while funding new ventures. It also means the interest on the portion of the loan used for business purposes may be tax-deductible, depending on the ATO's view of your specific arrangement. That tax treatment changes the effective cost of borrowing and makes property equity a more attractive funding source than unsecured credit or vendor finance.

In our experience, solicitors who have built equity over five to ten years in suburbs like Lane Cove, Pymble, or Chatswood often prefer this approach over diluting ownership in the business or taking on high-interest commercial debt. The refinance process also provides an opportunity to review the underlying home loan structure, switching from a rate that may no longer be competitive to one that aligns with your current financial position.

How lenders assess equity release for business purposes

Lenders evaluate two core components: the loan-to-value ratio on your property and your capacity to service the increased loan amount. Most lenders cap borrowing at 80% of the property's current value without lenders mortgage insurance, though some profession-specific products allow higher LVRs for solicitors and barristers.

You will need to provide a clear explanation of how the funds will be used. A detailed business plan, evidence of your role in the venture, and projected cash flow statements strengthen the application. If you are buying into an established practice, the lender may request financials for that business as well. If the business is new, they rely more heavily on your personal income and your track record in the profession.

Property valuation is ordered by the lender once the application progresses. If the valuation comes in lower than expected, your available equity shrinks and you may need to adjust the amount you are seeking to release. This is more common in areas where property values have plateaued or where the property type is less liquid.

Structuring the loan for flexibility and tax efficiency

Splitting the refinanced loan into separate accounts improves both flexibility and tax reporting. One split covers the original home loan balance, another covers the equity release used for business purposes. This separation ensures that only the interest on the business portion is claimed as a deduction, which matters when preparing your tax return or responding to an ATO audit.

Some lenders also allow an offset account to be linked to the personal portion of the loan while keeping the business portion separate. This preserves the deductibility of interest on the business component while reducing interest on the non-deductible portion. Redraw facilities are available on most variable rate products, but drawing down from the business split and then redeploying funds for personal use creates a record-keeping problem that your accountant will flag.

If you are planning further equity release in the next 12 to 24 months, for example to fund a second property purchase or another business investment, consider a loan structure that allows for future top-ups without a full refinance. Not all lenders offer this, and those that do may require the top-up to be within the original approved LVR.

What happens when your fixed rate period ends

If your current home loan is on a fixed rate and that period is ending soon, refinancing to access equity can be timed to avoid break costs. Fixed rate loans that are refinanced before expiry typically incur a break fee, which can be several thousand dollars depending on the remaining term and the difference between your fixed rate and current wholesale rates. Waiting until the fixed rate period ends eliminates that cost and makes the refinance more economical.

Once the fixed term concludes, you revert to the lender's variable rate, which is often higher than the initial fixed rate. Refinancing at that point allows you to negotiate a lower variable rate or lock in a new fixed term while simultaneously accessing the equity you need for your business. The timing aligns the refinance with a natural review point in your loan, and you avoid paying interest at an uncompetitive rate while waiting for the right moment to act.

Refinancing when you are moving from PAYG to self-employment

If you are transitioning from a PAYG role at a law firm to running your own practice, timing the refinance to release equity before you leave employment improves your chances of approval. Lenders assess PAYG income more favourably than self-employed income in the first two years, and you avoid the need to provide ABN registrations, business financials, and accountant declarations that may not yet exist.

Once you leave employment, most lenders require at least one full financial year of lodged tax returns before they will consider your business income for serviceability. Some lenders accept accountant-prepared profit and loss statements after six months, but those products are less common and often come with higher interest rates. Refinancing while still employed allows you to access the equity at a lower rate and with fewer documentation hurdles.

If you have already made the transition and are applying as a self-employed lawyer, prepare detailed financials, evidence of consistent invoicing, and a letter from your accountant confirming your income. The application takes longer, and the lender may apply a discount to your declared income to account for variability. Planning ahead and refinancing before the employment change avoids these complications.

How refinancing compares to other funding options

Releasing equity through a home loan refinance typically offers lower interest rates than unsecured business loans, which can exceed 8% to 12% depending on the lender and your credit profile. The security provided by your property reduces the lender's risk, and that flows through to the interest rate you pay. Loan terms are also longer, which reduces monthly repayments and improves cash flow during the early stages of a business.

Vendor finance or equity partnerships may seem like alternatives, but both come with trade-offs. Vendor finance often includes higher effective interest rates once all fees are accounted for, and equity partnerships dilute your ownership and decision-making control. Using property equity allows you to retain full ownership of the business and structure repayments in a way that aligns with your income.

Some solicitors also consider debt recycling as part of the refinance, where non-deductible home loan debt is progressively converted into deductible investment debt. This strategy works when you are also investing in income-producing assets alongside your business venture, but it requires careful structuring and ongoing record-keeping to satisfy ATO requirements.

When a loan review identifies refinancing opportunities

A loan health check often reveals that your current home loan rate is higher than what is available in the market, or that your loan lacks features that would suit your current circumstances. If you are already considering refinancing to access equity, combining that with a rate review saves time and avoids multiple valuation or application fees.

Reviewing your loan also clarifies how much equity is available and whether your current lender is likely to approve an increase in your loan amount. Some lenders are more restrictive when assessing equity release for business purposes, particularly if you are moving into self-employment. Knowing that in advance allows you to target lenders with more flexible policies and avoid declined applications that affect your credit file.

Call one of our team or book an appointment at a time that works for you to discuss how refinancing fits your business funding requirements and whether your current loan structure supports the direction you are heading.

Frequently Asked Questions