Buying Property Through a Company or Trust: Lending Guide

Why Buy Property Through a Company or Trust

Property investment in Australia is not just about choosing the right suburb or timing the market. For many investors, business owners, and high-net-worth individuals, the structure through which you hold property can be just as important as the property itself. Buying through a company or trust offers meaningful advantages in asset protection, tax efficiency, and long-term estate planning — but it also introduces significant complexity when it comes to obtaining finance.

Each year, thousands of Australians establish trusts and companies specifically to hold investment property. The motivations vary, but the core benefits generally fall into three categories:

Asset Protection

Holding property in a trust or company creates a legal separation between the asset and the individual. If you operate a business or work in a profession exposed to litigation risk — such as medicine, construction, or financial services — holding assets personally can leave them vulnerable to claims. A properly structured trust places the property beyond the reach of personal creditors, provided the trust was not established with the intention of defeating creditors.

Tax Planning and Income Distribution

Discretionary trusts, in particular, allow the trustee to distribute rental income and capital gains among beneficiaries in a tax-effective manner. Instead of a single high-income earner paying the top marginal rate on rental income, the trust can allocate income to beneficiaries in lower tax brackets. This flexibility is one of the primary reasons property investors use trust structures. For more on how entity structures interact with commercial property finance, see our dedicated guide.

Estate Planning and Succession

Trusts offer a powerful tool for intergenerational wealth transfer. Unlike property held in a personal name, which must pass through probate upon death, trust assets can transition seamlessly to the next generation through changes in beneficiaries or appointors. This avoids stamp duty on transfer (in most states), reduces legal costs, and provides continuity for the family's property portfolio.

Types of Entity Structures Explained

Not all entity structures are created equal, and the type you choose will have a direct impact on your ability to borrow, the lenders available to you, and the terms you can expect. Here is a breakdown of the most common structures used to hold property in Australia.

Family (Discretionary) Trust

The family trust is the most popular structure for property investors. The trustee (often a company) holds property on behalf of the beneficiaries, who are typically family members. The trustee has discretion over how income and capital are distributed, providing maximum flexibility for tax planning. Most lenders are familiar with family trusts and will lend to them, though with additional requirements.

Unit Trust

A unit trust issues units to its holders, similar to shares in a company. Each unit holder has a fixed entitlement to the trust's income and capital based on their unit holding. Unit trusts are commonly used for joint ventures between unrelated parties — for example, two families purchasing a property together. Lenders typically require all unit holders to guarantee the loan, which can complicate matters when parties disagree.

Hybrid Trust

A hybrid trust combines elements of both discretionary and unit trusts. It can issue units while also allowing the trustee discretion over distributions. While flexible, hybrid trusts are increasingly scrutinised by lenders because of their complexity. Some major banks have stopped lending to hybrid trusts altogether.

Company (Pty Ltd)

A proprietary limited company can directly hold property. Companies pay a flat tax rate of 25-30% (depending on turnover and base rate entity status), which can be advantageous in some circumstances. However, companies do not benefit from the 50% CGT discount available to individuals and trusts holding assets for more than 12 months. Lending to companies requires director guarantees and often faces similar scrutiny to trust lending.

Self-Managed Super Fund (SMSF)

SMSFs can borrow to purchase property through a limited recourse borrowing arrangement (LRBA). This is one of the most regulated forms of property lending in Australia, with strict rules around property type, tenant relationships, and loan structure. For a detailed guide on SMSF property loans, see our comprehensive article on the subject.

How Lenders Assess Trust and Company Borrowers

When you apply for a private loan in your personal name, the lender assesses your income, expenses, credit history, and the property's value. When a trust or company is the borrower, the assessment process becomes considerably more involved.

Lenders must answer a fundamentally different set of questions when a corporate entity is borrowing:

• Who controls the entity? Lenders need to identify all directors, trustees, appointors, and beneficiaries to understand the power structure behind the borrowing entity.
• Does the trust deed allow borrowing? Not all trust deeds authorise the trustee to borrow money or mortgage property. If the deed is silent or restrictive, the loan cannot proceed without an amendment.
• Who will guarantee the loan? Since trusts and companies are separate legal entities with limited assets, lenders require natural persons to provide personal guarantees.
• What is the entity's income? If the trust or company has its own income (such as rental income from existing properties), this will be assessed differently from personal salary income.
• Are there related-party transactions? Lenders scrutinise transactions between the entity and related parties to ensure there are no uncommercial arrangements that could impact the entity's ability to service the loan.

The complexity of this assessment means that entity borrowers often face longer processing times, more document requests, and a higher chance of conditional approval or outright decline. Borrowers who also need low-doc lending solutions face an even more challenging landscape, as the combination of entity borrowing and reduced documentation pushes most applications outside standard bank policy.

Why Banks Are Restrictive With Entity Lending

If you have ever tried to get a private loan through a company or trust with a major bank, you know the experience can be frustrating. Banks are inherently conservative institutions, and entity lending introduces variables that their standardised credit processes struggle to accommodate.

The key reasons banks are restrictive with trust and company lending include:

• Trust deed variability: Every trust deed is different. Banks must conduct a legal review of each deed to confirm borrowing powers, identify all relevant parties, and check for clauses that might complicate enforcement. This is expensive and time-consuming.
• Regulatory complexity: APRA (the Australian Prudential Regulation Authority) requires banks to hold additional capital against loans they consider higher risk. Entity lending often carries higher risk-weighting, making it less profitable for banks.
• Enforcement difficulties: If a trust or company defaults, the bank's recovery options can be more complex than with a personal borrower. Trustees can be replaced, companies can be wound up, and assets can be distributed in ways that reduce the security available to the lender.
• Lack of automation: Banks rely on automated credit scoring and decisioning systems. Entity applications require manual assessment by experienced credit analysts, which is slower and more costly.
• Historical losses: Some banks have experienced losses on entity lending due to inadequate trust deed review or complex corporate structures that obscured the true financial position of the borrower.

The result is that many banks either refuse to lend to certain types of trusts (such as hybrid trusts or trusts with corporate beneficiaries), impose restrictive LVR caps, or charge significantly higher rates. This creates a gap in the market that private lenders in Australia are well-positioned to fill.

Documentation Requirements for Entity Loans

One of the biggest hurdles in entity lending is documentation. Beyond the standard income and asset documents required for any loan, trust and company borrowers must provide extensive corporate and legal documentation.

Trust Borrowers Typically Need

• Certified copy of the trust deed (including all amendments and variations)
• Certificate of trust registration (if applicable)
• Minutes of the trustee meeting authorising the borrowing and mortgage
• Identification documents for all individual trustees, or all directors of the corporate trustee
• Financial statements for the trust (2 years minimum for most lenders)
• Personal financial statements from guarantors
• Tax returns for the trust and for individual guarantors
• ATO Notice of Assessment for guarantors
• Details of all beneficiaries (for KYC/AML compliance)

Company Borrowers Typically Need

• ASIC company extract (current)
• Company constitution or memorandum and articles of association
• Board resolution authorising the borrowing and mortgage
• Identification for all directors and shareholders
• Company financial statements (2 years minimum)
• Company tax returns
• Director guarantees and indemnities
• Personal financial statements from directors providing guarantees

The volume of documentation can be overwhelming, particularly for investors who are new to entity borrowing. Working with a broker experienced in entity structures can significantly streamline the process and reduce the risk of delays caused by missing or incorrect documents.

LVR and Rate Differences for Entity Lending

Entity borrowers should expect to pay more and borrow less than personal borrowers for equivalent properties. This reflects the additional risk and complexity that lenders associate with trust and company structures.

LVR Restrictions

While personal borrowers can often access LVRs of up to 95% (with lenders mortgage insurance), entity borrowers are typically capped at 70-80% LVR. Some lenders restrict trust lending further to 65% LVR, particularly for investment properties or commercial assets. This means entity borrowers need a larger deposit or more equity to complete a purchase.

Interest Rate Premiums

Entity borrowers typically pay a rate premium of 0.25% to 1.5% above the equivalent personal rate, depending on the lender and the complexity of the structure. Some lenders treat trust lending as "commercial" rather than "residential," which can attract significantly higher rates regardless of the property type.

Fee Considerations

Entity borrowers may also face additional fees including legal review fees for trust deed assessment (often $500-$1,500), higher application or establishment fees, and charges for preparing guarantor documentation. These costs should be factored into your overall investment analysis.

Personal vs Trust vs Company Borrowing

The following table provides a side-by-side comparison of the key lending differences between personal, trust, and company borrowing in Australia. Understanding these differences is critical when deciding on a structure for your next property purchase.

One notable disadvantage of trust and company structures is that negative gearing losses cannot be passed through to individual tax returns. If the property generates a loss (as many investment properties do in the early years), those losses remain trapped within the entity and can only offset future entity income. This is a significant consideration for investors who rely on negative gearing to reduce their personal tax burden.

Private Lending Advantages for Entity Borrowers

Given the restrictions that banks impose on entity lending, private and non-bank lenders have become an increasingly important source of finance for trust and company borrowers. The advantages of working with a private lender for entity finance are substantial.

Speed of Approval

Where banks take 4-8 weeks to process entity loan applications, private lenders can typically provide approval within 2-5 business days. This speed is critical when purchasing at auction, acquiring a property with a short settlement period, or when a bank has already declined the application and time is running out.

Flexible Trust Deed Assessment

Private lenders take a pragmatic approach to trust deed review. While banks may decline an application because the trust deed contains a clause they are unfamiliar with or uncomfortable with, private lenders focus on the practical question: is there sufficient security, and can the loan be repaid? This common-sense approach means many applications that banks decline are perfectly viable for private lenders.

Higher LVRs Available

Some private lenders will offer LVRs of up to 75-80% for entity borrowers, compared to the 65-70% that many banks limit trust lending to. This can mean the difference between a deal proceeding or falling over due to insufficient deposit. Borrowers can also explore second mortgage options to bridge any equity shortfall.

No Borrower Type Restrictions

Unlike banks, which may refuse to lend to hybrid trusts, trusts with corporate beneficiaries, or companies with complex shareholding structures, private lenders assess each deal on its merits. The focus is on the security property and the exit strategy rather than rigid policy exclusions.

Bridging to Permanent Finance

Many entity borrowers use private lending as a bridging solution. They secure the property quickly with a private loan, then refinance to a bank at better rates once the entity's financial position is established or the trust deed has been amended to satisfy bank requirements. This strategy allows investors to act quickly in competitive markets without missing opportunities.

Common Pitfalls and Mistakes to Avoid

Entity lending is complex, and even experienced property investors can make costly mistakes. Here are the most common pitfalls we see at Vertex Capital and how to avoid them.

1. Not Reviewing the Trust Deed Before Applying

The single most common cause of entity loan delays and declines is a trust deed that does not support borrowing. Before you even begin looking at properties, have your solicitor confirm that the trust deed explicitly authorises the trustee to borrow money, grant mortgages over real property, and provide guarantees. If the deed is silent on these powers, have it amended before applying.

2. Choosing the Wrong Structure for Your Goals

Many investors set up a trust or company based on advice from a friend or accountant who did not consider the lending implications. For example, a hybrid trust might offer the best tax outcomes but could make borrowing nearly impossible from a bank. Always consult with both a tax adviser and a lending specialist before establishing a structure.

3. Underestimating the Deposit Required

With LVRs capped at 70-80% for entity borrowers, you need significantly more equity than a personal borrower purchasing the same property. On a $1 million property, a personal borrower might need $50,000-$100,000 in deposit, while a trust borrower may need $200,000-$350,000. Plan your equity position carefully before committing to a purchase.

4. Failing to Separate Entity and Personal Finances

Lenders expect clear separation between the entity's finances and the personal finances of directors and trustees. Mixing personal and trust funds, using personal bank accounts for trust transactions, or failing to maintain proper records can raise red flags during the loan assessment and lead to decline.

5. Ignoring Land Tax Implications

In most Australian states, trusts and companies do not receive the same land tax thresholds as individuals. In some states, trusts are subject to land tax from the first dollar of land value with no threshold. This can add tens of thousands of dollars per year in holding costs. Factor land tax into your investment calculations before purchasing through an entity.

6. Not Having an Exit Strategy

If you use a private lender for entity finance, you need a clear exit strategy. Whether it is refinancing to a bank, selling the property, or injecting additional equity, your exit plan should be documented and realistic. Lenders will assess your exit strategy as part of the application, and a weak or unclear plan can lead to decline.

Frequently Asked Questions