Using Someone Else's Property as Security
A guarantee is a promise. A mortgage from a non-borrower is a charge over their title. What changes for the property owner, and what a funder asks for.
Property Lending Hub
Guarantor · Director's Guarantee · Property Security
Someone else can put their property behind your business loan, but a guarantee and a mortgage over their title are not the same instrument and they do not carry the same exposure. Here is what each one puts at risk, and what a funder asks for before it will accept the security.
Quick Answer
Someone else can provide the security for your business loan, either by signing a guarantor position or by giving a mortgage over a property they own. A guarantee is a promise, a mortgage is a property. Which one a funder asks for decides what the owner is exposed to, and what has to happen before a property secured facility can settle.
Also called: third party security, third party mortgage.
Can I use my parents' property as security for a business loan?
Yes, and the real question is which of two very different arrangements you are asking them for. One is a guarantee, a written promise to cover the debt if the business does not. The other is a mortgage over their title, a registered interest in one named property. Lenders, brokers and a good deal of published legal writing use those words as if they were interchangeable, and they are not.
The practical conditions are the easy part: they have to own the property outright or with a lender whose consent you can obtain, and they have to take their own legal advice before they sign anything.
The distinction matters because it decides the size of the exposure. A guarantee reaches whatever the person owns. A mortgage reaches one property and stops there, unless a guarantee has been signed alongside it. In deals I have seen, the conversation at the kitchen table is about the size of the loan, and the document that arrives a fortnight later is about something else entirely. That gap is where the family arguments start.
It also changes the timeline. Where the borrower already owns the security property, the file moves at the pace of the valuation of the security property and the credit read. Where the property belongs to somebody else, security from someone else typically adds time to settlement, indicative and varies by lender, because there is a second party to identify, a second lawyer to brief, and usually a second lender to ask.
If you already own the property you intend to use, the sequencing is different and it is covered in our guide to property security on a business loan. If the family is offering cash toward a deposit rather than their title, that is a different instrument again and it is set out in whether the family deposit is a gift or a loan. Everything below assumes the title is in someone else's name.
What is the difference between a guarantee and putting property up as security?
A guarantee is a promise, a mortgage is a property. That single line is the whole difference and almost nobody writing about this separates them. A guarantee is a contractual undertaking: the guarantor agrees to meet the borrower's obligation, and if it is called, the lender pursues the guarantor personally.
Nothing is registered against any title at the point of signing. A mortgage given by a person who is not the borrower is the opposite shape: it is an interest in one named parcel of land, registered on the register, and it is limited to that parcel.
Most commercial files carry both, which is why the two get conflated. A funder taking a property from a non-borrower will often want a guarantee from the same person as well, so that any shortfall after the property is realised is still recoverable. That is a decision the owner should make with their eyes open, because signing both removes the natural ceiling that a mortgage on its own provides.
| What you sign | What the lender registers | What is at risk | What you get out of it | What you need before signing |
|---|---|---|---|---|
| A guarantee, personal or given as a company director | Nothing on any title. The promise sits inside the loan documents and is enforced as a contract | Whatever you own when it is called, up to the guaranteed amount, including assets the lender has never seen | Nothing directly, unless you are a director or shareholder of the borrowing entity | Your own legal advice, and a clear read on whether the guarantee is capped or unlimited, and whether it is joint and several |
| A mortgage or caveat over a property you own, for a loan you are not borrowing | A registered mortgage or a caveat over the title, ranked behind anything already there | That one property, and only that property, unless you have also signed a guarantee | Nothing directly. The funds go to the borrower, not to you | Your own legal advice, written consent from any existing mortgagee, and a written cap on what the security actually secures |
The practical read is that a mortgage from a non-borrower is the narrower and more measurable of the two, and it is usually the one worth negotiating towards. It also creates a documented position on the title that both sides can see, which a promise never does. Where the security sits behind an existing loan, the ranking rules are the ones set out in our note on security position on title.
What is a director's guarantee?
A director's guarantee is a personal promise by a company director to meet the company's debt if the company does not, and it is standard on almost every commercial facility written to a corporate borrower. A company can be wound up and leave nothing behind, so a lender that takes only the company's covenant has taken very little. The guarantee closes that gap by putting a real person behind the entity.
Three details in the wording do all the work. The first is whether the guarantee is capped at a stated amount or unlimited. The second is whether it is joint and several, which means a lender can recover the whole debt from one director rather than a share from each. The third is whether it is supported by a mortgage over a named property, because a supported guarantee behaves very differently at enforcement from a bare one. A director who reads only the heading and not those three points has not read the document.
A guarantee given by a director is different in kind from a guarantee given by a parent, a sibling or a friend, even though the paperwork can look identical. The director is behind the borrowing because they benefit from it. Everyone else is not. That difference is the hinge for the rest of this article, and it is the same difference that decides how a guarantee already on foot reads at a different lender's desk, which is covered in how a business guarantee reads on a One Doc home loan.
Where the borrowing entity is a trustee rather than an ordinary company, the covenant a funder wants usually comes from the people controlling the structure rather than from the beneficiaries, and the reasoning behind that is set out in when a trust or company holds the property.
What are the risks to the person giving the security?
The central risk is structural rather than financial, and it is easy to state: the person signing gets none of the money. All of the benefit sits with the borrower and all of the downside sits with the person whose name is on the title. Everything else follows from that asymmetry, including the fact that regulators and courts look harder at these arrangements than at ordinary borrowing. No benefit, more scrutiny.
The financial risks are the obvious ones. The property can be realised if the facility is not repaid. The owner's own borrowing capacity is reduced while the security sits on the title, because their next lender will see the encumbrance and will treat it as a contingent liability.
Refinancing their own loan becomes a negotiation that has to involve the business's funder as well. And if the security is unlimited or open ended, it can secure future advances the owner never agreed to, which is why a written cap matters more than the interest rate on the underlying facility.
The relationship risk is the one that is never in the documents and is usually the one that lands. The owner is exposed to decisions made by a business they do not run, cannot see the books of, and have no power to change. The Australian Securities and Investments Commission's Moneysmart guidance on going guarantor on a loan sets out the same asymmetry in consumer terms, warning that a guarantor can be left paying a debt they received no benefit from, and the logic is identical on a commercial file.
What makes this workable
- The owner has their own lawyer and their own accountant, briefed separately.
- The security is capped in writing to a stated amount and a stated facility.
- Any existing lender has consented in writing before documents are signed.
- The owner has seen the borrower's actual position, not a summary of it.
- There is a written release trigger, so the security comes off on a known event.
- The owner could absorb the loss of that property without losing their home.
When to walk away
- The owner is asked to sign a guarantee and a mortgage without being told why both.
- The security is described as all monies, or open ended, with no cap.
- The owner is being rushed to a settlement date they had no part in setting.
- The borrower will not show the owner the numbers behind the request.
- The property being offered is the owner's only home and only asset.
- The owner is being steered towards the borrower's lawyer instead of their own.
Does the person giving the security need their own lawyer?
Yes, and on most commercial files a funder will not proceed without a certificate confirming it. Independent legal advice is not a formality. It exists because the enforceability of the security later depends on the owner having understood what they signed at the time, and because the standard rises where the person receives no benefit from the transaction. A funder that skips it is not doing the owner a favour, it is creating an argument that can be run against its own security years afterwards.
The word doing the work is independent. The security provider needs their own adviser, not yours. A lawyer acting for the borrower, or for the company, or for the family broadly, is not independent for this purpose, and a certificate signed by that lawyer carries very little weight. The same reasoning applies on the accounting side: the owner should be told, by someone who is not the borrower, what the encumbrance does to their own position.
The table below is the practical scorecard. In deals I have seen, the items that hold a file up are almost never the valuation. They are the consent and the certificate, both of which depend on third parties working to their own timetable.
| Requirement | Who provides it | Why the funder wants it | What stalls the file |
|---|---|---|---|
| Certified identification for the security provider | The property owner | Confirms the person signing is the registered proprietor | Name mismatches between the title and the identity documents |
| Independent legal advice certificate | The owner's own lawyer | Evidences that the owner understood the exposure before signing | A lawyer who also acts for the borrower, which fails the independence test |
| Current title search and encumbrance position | The funder or its lawyer | Shows what already sits on the title and where the new interest would rank | Interests nobody disclosed, such as an old caveat that was never withdrawn |
| Written consent from the existing mortgagee | The owner's current lender | Most first mortgages prohibit a further interest without consent | Consent turnaround sits with the existing lender, not with you |
| Valuation of the security property | A valuer instructed by the funder | Sets the lending value and the combined position across all interests | Access arrangements, where the owner and the borrower are different households |
| Written scope of what the security secures | The funder's lawyer, negotiated | Defines whether the security is limited to one facility or extends further | Open ended or all monies wording the owner will not accept, and should not |
| Agreed release trigger and discharge path | Negotiated at the start | Sets the event on which the security comes off the title | Leaving it undocumented, which turns the release into a fresh negotiation |
The mortgagee consent line deserves its own note, because it is the single most common cause of a slipped settlement on this structure. A first mortgage almost always prohibits a further registered interest without written approval, and obtaining it is a separate process with a separate lender. The mechanics are set out under first mortgagee consent, and where the facility spans more than one title that consent has to be obtained twice, as set out in putting two properties behind one loan.
What happens to their property if the loan defaults?
If the loan defaults, what happens to the property depends on which document was signed and on where the interest ranks against everything already registered. Where the owner gave a mortgage or a caveat over a named title, the funder holds an interest in that land and can move against it, but it sits behind any lender that already ranks ahead.
Where only a guarantee was signed, there is no interest in any land at all, and the funder must first establish the debt against the guarantor before reaching any asset they own. That is a slower path, not a safer one.
Ranking is what decides the recovery, and it is arithmetic rather than argument. The first registered mortgage is paid out first from any sale proceeds, then the next interest in order, and whatever is left goes to the owner. A funder taking a junior position is pricing for the risk that there is nothing left by the time it gets there, which is why non-bank and specialist funders are the ones who write this shape of deal and why the cost sits above a first mortgage rate.
Before any of that, there is a clock, and it is the number most owners in this position never get told. A mortgagee cannot move straight from default to sale. Under section 57(2)(b) of the Real Property Act 1900 (NSW) it has to serve a default notice and then wait one month after service, or longer where the mortgage itself specifies a longer period, before exercising the power of sale.
Victoria runs a similar sequence in two parts. Under section 76 of the Transfer of Land Act 1958 the default has to have continued for one month, or such other period as the mortgage expressly fixes, before the notice can be served, and under section 77 a further month runs from service before the power of sale can be exercised.
Queensland is the state that genuinely works on days. Section 84 of the Property Law Act 1974 requires the default to have continued for 30 days from service of the notice. A month and 30 days are not the same period, so the state the land sits in decides how much time the owner actually has, before anyone looks at a calendar.
The point of the clock is that it is a cure window, not a countdown. If the requirements of the notice are complied with inside the period, the default is treated as not having occurred, which is why the owner's right to be told what is owed matters so much: they cannot pay out what nobody has quantified.
The selling mortgagee also has to serve a copy of that notice on lower-ranking registered mortgagees and on caveators, so a junior funder finds out and can move to protect its own position. Timing and service are technical and state specific, and whether a notice you have received is valid is a question for a solicitor.
Two protections survive regardless of the paperwork and both are worth knowing before signing rather than after. The security provider retains the right to be told what is owed and to pay it out to protect their property, and the general law protections against unconscionable conduct continue to apply, with the standard applied more strictly where the person signing received no benefit.
Neither is a substitute for the cap, the consent and the certificate. They are what is left when those were never negotiated, and whether either is available on your own facts is a question for a solicitor rather than for a broker.
The general mechanics of borrowing against a title you already hold are set out in our note on borrowing against property you own, and the product level detail sits in the caveat loans guide. If you are weighing this structure against alternatives that do not involve anyone else's title, the options are mapped across the property lending hub, and a secured loan against an asset the business already owns is usually the first one to test.
A guarantee is a promise, a mortgage is a property. When someone who is not the borrower is asked to stand behind a business loan, that distinction decides the size of the exposure. The narrower arrangement, a capped mortgage over one named title with written consent from any existing lender and a documented release trigger, is the one worth negotiating towards. The broader one, a guarantee with no cap signed alongside it, quietly removes the ceiling. Either way, the person signing gets none of the money, and the security is given for someone else's benefit.
Key takeaway: Before anyone signs, get the cap in writing, get the existing lender's consent in hand, and get the owner their own lawyer.Frequently Asked Questions
A director’s guarantee is unlimited unless the document says otherwise, which is the opposite of what most directors assume. An uncapped guarantee follows the debt wherever it goes, including future advances, redraws and rolled-over facilities the director never separately agreed to. A capped guarantee names a maximum figure and stops there. Asking for a cap is a normal commercial request, and it is easier to negotiate before the offer is accepted, as the director’s guarantee entry explains.
A guarantor is released when the guarantee says they are released, and on most commercial documents that means when the debt is repaid in full and the lender executes a written release. Resigning as a director does nothing on its own: the guarantee is a personal contract and survives the resignation unless the lender agrees otherwise in writing. On a refinance, obtain the release as part of that settlement rather than assuming it, and lodge any mortgage discharge separately. See security position on title.
A director’s guarantee is a personal guarantee given in the capacity of a company director, so in most Australian commercial loan documents the two labels describe the same instrument. What changes the exposure is the wording rather than the title: capped or unlimited, joint and several or not, and whether it is supported by a mortgage over a named property. Read those three points before the label. See how a business guarantee reads on a One Doc home loan.
Giving security for someone else’s loan does reduce your own borrowing capacity, in two separate ways. The registered interest shows on a title search, so your next lender sees the encumbrance and reduces the equity it counts. Separately, most lenders treat a guarantee or third party security as a contingent liability in servicing, and some assess it at the full facility limit rather than the current balance. That is why an agreed release trigger matters as much as the cap. See guarantor entry.
An all monies security is a mortgage or charge drafted to secure everything the borrower owes the lender, now and in the future, rather than one named facility. For an owner who is not the borrower it is the most dangerous clause in the pack, because the title can end up standing behind advances made years later that the owner never saw. The safer position is a security limited to a stated facility and amount, with a written release trigger. See the all monies clause on a commercial property loan.
FBAA Accredited
