Business Loan to fund home loan deposit?

Discussion in 'Property Finance' started by thatman123, 18th Jun, 2015.

?

How often do lenders/credit turn a blind eye to information that could hurt your LAF?

  1. Never

    3 vote(s)
    100.0%
  2. Occasionally

    0 vote(s)
    0.0%
  3. Often

    0 vote(s)
    0.0%
  4. Almost always

    0 vote(s)
    0.0%
  1. thatman123

    thatman123 Member

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    Is it possible, or even legal, to get a business loan for the purpose of investing in residential property? In other words, applying for a business loan to use as a deposit for a home loan?

    Further, if the answer to the above is no, can't a business owner just say that the business loan is to fund planned advertising and marketing? Its not like the bank/lender comes back asking for receipts for the advertising/marketing?
     
  2. tobe

    tobe Mortgage Broker

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    SO your a business owner, and your business has some cash, that it would like to lend to you for a deposit on a house?

    No problem with this scenario as the bank looks at both you and the business's assets and liabilities to determine your eligibility. Its a zero sum game.

    If you are asking whether your business could get a loan from the bank for business purposes and then instead lend to yourself to fund the deposit? This would be fraud. First the business bank wouldn't lend for that purpose. Then only a very few lenders will accept borrowed funds as your deposit.

    Would any banks look the other way? No, if anyone in credit or compliance saw it they would call it and decline the loan.
     
  3. imbi3

    imbi3 Member

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    If your business has freehold asset such as commercial property, you may be able to gear up the asset to fund the residential property
     
  4. Terry_w

    Terry_w Member

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    The wording of your post shows you don't understand the concept of 'business'. A business is not a legal entity, it is what a legal entity does. As such a business cannot borrow. A lender can only lend to legal persons which are only people or companies.

    If you are running a business you may be able to borrow - but what is the security for the loan? Housing usually (land actually) so you will need property to secure the loan. Why not just get a residential loan if this is the case.

    If the business is being operated by a company then the company may borrow, but it would need security for loan such as commercial property, maybe even residential property. It could borrow these funds and then lend them to you - but then you have tax issues Div 7A.. It may also be possible for you to use the company's property as security - subject to corporations law issues. If you were able to do this you may be able to borrow and use for residential investment - I have never seen this done.
     
  5. thatman123

    thatman123 Member

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    Perhaps my wording was incorrect.

    I operate a business through a trust entity and hold residential property in a separate trust entity.

    I suppose my question is really, will lenders lend on the goodwill of a business? or will they require equity in the form of physical asset?

    ie: My business is arguably worth ~$1,000,000 based on a market multiple of the MAT EBITDA. Debt is only $360,000. I am asking if I could borrow against the market value of the business? either secured or unsecured. And then use this 'business loan' to fund deposits in residential property through my other trust?

    Further, the debt of $360k is already 'secured' by a block of land. But the block of land is already geared 80% per se. That is, block worth $170k, debt $135k, equity only 35k in the block itself.
     
  6. Terry_w

    Terry_w Member

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    Generally commercial lenders won't lend on goodwill as it is not tangible. It can vanish overnight. If you are operating a major franchise it may be possible (possible to borrow to buy, not sure about once owned)

    But there are some ways to borrow such as factoring invoices - getting paid up front for invoices rather than waiting 3 months sort of thing.

    If you have a trail book you may be able to borrow using that as security. Or a rent roll. Something that could be sold - a recurring income stream
     
  7. thatman123

    thatman123 Member

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    Well a patient list would be similar to a trail book, wouldn't it?

    My question though is will a lender accept those borrowed funds (that are secured against the 'trail book' or business as such) as a deposit on a residential property?
     
  8. Terry_w

    Terry_w Member

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    If you could borrow the deposit then yes it could be acceptable. A lender will want to see funds to complete. They will also assess you on the new loans - assuming you have guaranteed it or borrowed it.

    You also have to consider the trust law issues..
     
  9. thatman123

    thatman123 Member

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    A business banker from a big 4 told me that they can't lend to a business entity (trading entity) for the purposes of residential investment.

    Is this correct?

    It seemed he was a little unsure....



    Further, trust issues as in Div7A?
     
  10. Terry_w

    Terry_w Member

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    Yes, prob correct.

    No, trust law issues I was talking about - powers of trustees etc
     
  11. thatman123

    thatman123 Member

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    If I said the business loan is for planned advertising and marketing, but then just let it sit there for 3 months, and just shifted funds into say an existing LOC, would it be fraud to then use it as a deposit for a home loan?

    Again its not like they come back asking for invoices for marketing do they? especially if the valuation of the business is arguably 3 times the debt?
     
  12. Terry_w

    Terry_w Member

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    Would you be getting a financial advantage by deception?
     
  13. thatman123

    thatman123 Member

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    Marketing invoices may be "less than estimated"?