Business loans, guarantees and ATO debt can cut your borrowing power. How home loan lenders count business debt, and what to fix before you apply.
Business Owners Hub
Business Loan · Home Loan · Serviceability
Most business owners ask whether a business loan will stop them getting a home loan. The better question is how the lender will count it, because that decides how much you can borrow, not just whether you are approved.
Quick Answer
A business loan can affect your home loan, because the lender counts the repayments on business debts you are personally liable for or have guaranteed, and some lenders also count business limits you have not drawn. That reduces your serviceability, so business debt usually changes how much you can borrow rather than whether you can borrow at all. The same counting applies on a One Doc home loan, so the work is in listing every debt before you apply.
Will a business loan affect getting a home loan?
A business loan will affect getting a home loan whenever you are personally on the hook for it, because the lender takes its repayment out of your income before it works out what you can borrow. The lender counts the repayment, not the reason. A loan that bought a machine earning good money still shows up in the lender's model as money leaving every month.
Here is the part most owners miss. Business debt rarely causes a straight decline on its own. Where this commonly lands is a smaller approved amount than you expected, or a request for more documents late in the process, which is how some files end up declined after pre-approval. A debt that was declared and explained early is a number in the servicing. A debt the lender finds on its own is a question about everything else on the file.
From the underwriter's seat, the test is plain: after every repayment you are responsible for, tested at a rate above the one you actually pay, is there enough income left to carry the new home loan? Many lenders test other variable debts at a buffered rate as well, so the buffer applies to business repayments too at many lenders. For the wider picture on borrowing as an owner, start at the Business Owners Hub.
Which business debts does a home loan lender count?
A home loan lender counts the business debts you personally owe or have guaranteed: term business loans, overdrafts and lines of credit, equipment and vehicle finance, and tax debt on a payment plan. Each one is counted a little differently, and the method matters more than the balance.
| Business debt | Counted? | How it is usually counted |
|---|---|---|
| Business term loan in your own name | Yes | The actual repayment, sometimes tested at a higher rate, depending on the lender |
| Overdraft or line of credit | Usually yes | Often on the full limit, as if drawn, rather than the balance, at many lenders |
| Equipment or vehicle finance | Yes, if you are liable | The contract repayment; some lenders accept business income covering it |
| ATO payment plan | Usually yes | The instalment as a liability, plus questions about why the debt arose |
| Guarantee of a company loan | Varies | Some lenders add the repayment; others set it aside if company financials show the company services it |
How are business overdrafts and lines of credit counted?
Business overdrafts and lines of credit are usually counted on the limit, not on what you owe today, typically as if the full limit were drawn and repaid over a set period. An overdraft sitting at zero can still cost you borrowing power. The detail on how this plays out on a One Doc file is in a business overdraft on a One Doc home loan.
Equipment and vehicle finance is counted at the contract repayment, and the walk-through is in how existing ute and equipment debt affects servicing.
Does a loan in your company's name count against you personally?
A loan in your company's name usually counts against you personally only through a guarantee you signed or through the lower company profit after its repayments, while a sole trader's business debt is personal debt from day one. A sole trader and the business are the same legal person, so every business repayment sits in your personal servicing. The way lenders read that income is covered in sole trader business loans.
For a company, the company is the borrower. If its income supports your home loan, the lender uses profit after the company's own repayments, so the debt is already priced in once. The risk is the guarantee: most lenders to small companies ask directors to sign one, and that pulls the debt back onto your personal application.
Usually lands lightly
- Company debt with no personal guarantee
- Guaranteed company debt the company's financials clearly service, where the lender accepts company servicing
- Debt paid out and the account closed before you apply
- Limits closed rather than left open
Usually lands hard
- Any business debt held as a sole trader
- Overdraft limits left open and counted as if drawn
- ATO debt with no plan, or a plan in arrears
- Guarantees with no evidence of who pays the loan
How do personal and director guarantees show up on a home loan application?
A personal or director guarantee shows up as a liability you must declare, and depending on the lender it is either added to your commitments or set aside when the company can show it services the debt. A guarantee is a debt in waiting. The lender has to assume it could land on you, so it wants to see who actually makes the repayments and how comfortably.
Expect questions about the loan the guarantee covers: the lender, the limit, the repayment and recent statements. Lenders that are relaxed about guarantees usually want company financials showing the repayment is covered with room to spare. The mechanics of a directors guarantee are set out in the directors guarantee guide, and the One Doc version is in a directors guarantee on a One Doc home loan.
Directors have more moving parts than guarantees alone, including how company income is used and which home loan path fits. That is covered in company director mortgage options.
How does ATO debt or a payment plan affect your home loan?
ATO debt affects a home loan in two ways: the instalment on a payment plan is counted as a liability, and the debt itself tells the lender something about your cash flow. ATO debt is debt. Most lenders want it on a formal ATO payment plan that is being kept up to date, and some will not lend while any tax debt is outstanding.
Leaving it unmanaged costs more than the debt. The ATO can report large overdue business tax debts to credit reporting bodies where the business has not engaged with it, which puts the problem on a file every lender reads. A plan that is set up early and paid on time reads very differently from a debt that grew quietly.
Can you get a One Doc home loan while on an ATO payment plan?
A One Doc home loan is possible while on an ATO payment plan with some lenders, provided the plan is current and the instalment fits in servicing. How that lands is in a One Doc home loan with an ATO payment plan.
Do lenders count business limits you have not used?
Many lenders count business limits you have not used, because you could draw them tomorrow. Some count the full limit as if it were drawn, whatever the balance. That includes overdrafts, lines of credit and business credit cards held in your name or guaranteed by you.
What lenders actually look at first is the limit on the statement, not the balance. A business card with a large limit you clear every month still reads as a commitment in the servicing, and the total of your limits can push up your debt to income ratio, which some lenders cap. Cutting a limit you never use is often the cheapest borrowing power you can find.
Do business loans and enquiries show on your personal credit file?
Business loan enquiries often show on your personal credit file, because lenders usually check the owner's or guarantor's personal file when you apply for business credit, even if the loan account itself does not appear the way a consumer loan would. Each application leaves a credit enquiry, and several in a short window can make a home loan lender ask what else is going on. The OAIC's credit reporting guide explains what can be recorded on your personal file and how to get a free copy.
Because a business account may not be reported in full, lenders fill the gap with statements and your own declaration, so an account missing from the file is still something to disclose. More on how scores move is in credit scores for business loans, and the report types by structure are in small business credit reports.
How can you reduce the impact of business debt before applying?
You can reduce the impact of business debt by closing what you do not need, paying down or restructuring what you keep, and documenting what the company services, all before the home loan application goes in. Pay down or restructure before you apply, because once a lender has assessed the file, changes look like problems rather than plans.
| Step | What it changes | Who to talk to |
|---|---|---|
| List every debt, limit and guarantee in your name | Nothing turns up late in the assessment | Your broker |
| Close or cut limits you do not use | Removes commitments counted as if drawn | The business lender |
| Pay down or refinance a small, expensive loan | Lowers the repayment in servicing | Your broker and accountant |
| Put ATO debt on a plan and keep it current | Turns an open question into a known instalment | The ATO and your accountant |
| Gather evidence the company services guaranteed debt | Gives the lender grounds to set the guarantee aside | Your accountant |
| Hold new business credit applications until after settlement | Avoids fresh enquiries and new repayments mid-assessment | Your broker |
If several small debts are eating your servicing, combining them can help, and the trade-offs are in the business debt consolidation guide. Loans between you and your company, including any Division 7A arrangement, are worth raising with your accountant before you apply, because lenders will see them in the financials. The checks lenders run on the rest of your file are in what lenders look up on a self-employed borrower.
A business loan affects your home loan through the repayments you are personally responsible for, through guarantees you signed and, with many lenders, through limits you have not drawn. ATO debt counts too, and the buffer applies to business repayments as well as the new home loan. Business debt usually changes how much you can borrow rather than whether you can borrow, and most of what moves that number can be fixed before the application goes in.
Key takeaway: list every business debt, limit and guarantee with your name on it, then pay down or restructure before you apply.Frequently Asked Questions
A business loan can affect getting a mortgage approved when you are personally liable for it or have guaranteed it, because the lender counts its repayments in your serviceability. It rarely causes a decline on its own. Approval problems usually come from arrears, undisclosed debt or tax debt with no plan in place, so declaring every business debt up front keeps the application on track.
A car loan in your business name affects your home loan if you are a sole trader, because it is your own debt, or if you guaranteed it for your company. The lender counts the repayment, and some also add the balance to your debt to income ratio. A company car loan with no guarantee usually shows up only through the company's lower profit. Declare it either way, because lenders often find vehicle finance on your bank statements or credit file.
Paying off a business loan before applying can lift your borrowing power, but only if it does not drain the deposit or the cash the business needs to run. Closing a limit you never use often helps more for less cash than paying down a balance. Plan the order with your broker before the application goes in, and check with your accountant how the payout sits in the business books. For directors, company director mortgage options covers how company debt is read.
A home loan lender will review your business debts, usually through business bank statements, financial statements, your credit file and your own declaration of liabilities and guarantees. The guide to what lenders look up on a self-employed borrower covers each check. Anything found that was not declared tends to slow or stop the application.
Getting a home loan as a business owner is harder when your income documents or business debts do not fit a major bank's standard policy, but it is not hard by default. Non-bank lenders assess business owners every day and read business debt with more flexibility, though policy differs from one lender to the next. The reasons banks say no are set out in why big banks decline self-employed borrowers.
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