Common Mistakes When Borrowing in a Company Name

Borrowing Through a Company Limits Your Investment Loan Options

Most lenders treat investment loans held by companies differently to loans held by individuals, and the restrictions start with who they'll lend to. Fewer lenders offer investment loan products to corporate borrowers, and those that do typically price them higher and apply tighter lending criteria.

Consider an investor who holds two properties personally and decides to purchase a third through a newly established company. They find the pool of willing lenders shrinks immediately. Several major banks don't lend to non-trading companies at all, while others cap the loan amount or require the company to have been trading for at least two years with audited financials. The investor assumed borrowing capacity would be calculated on their personal income, but instead the lender assesses the company's income, which is nil. The application is declined.

Under APS 112, the ADI must hold unequivocal enforcement rights over the mortgaged property at all times, including a right to possession and power of sale in the event of default. When a company is the borrower, lenders require personal guarantees from the directors, which means personal liability without the benefit of personal tax treatment. The company pays tax at the flat company rate, but individuals guaranteeing the loan carry the risk.

Negative Gearing Rules Changed for New Property Purchases

From the 2027-28 income year, losses related to established residential investment properties acquired after 7:30pm AEST on 12 May 2026 are deductible only against other income from residential properties, including capital gains on residential properties. The change applies to residential property held by companies, meaning a company that purchases an established investment property now can only offset losses against residential property income within the same company.

A company holding a single negatively geared property has nowhere to offset the loss unless it sells another residential property or earns rental income elsewhere in the portfolio. Properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 may be negatively geared under the current rules until 30 June 2027 only. After that, the restricted treatment applies.

For properties held personally before 12 May 2026, negative gearing continues to work as it always has. Losses from residential investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, continue to be fully deductible against other income, including salary and wages, until the property is sold. Companies don't receive salary income, so the distinction matters even more when deciding whether to borrow personally or through a company structure.

Capital Gains Tax Treatment Splits From Mid-2027

From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships on affected assets is replaced by cost base indexation using CPI and a 30 per cent minimum tax rate on real capital gains accruing from that date. Companies don't receive the CGT discount, so they're not affected by this change. They pay tax at the flat company rate on the full nominal gain, indexed or not.

An investor borrowing personally might benefit from indexation and a lower effective rate on real gains. An investor borrowing through a company pays the company tax rate on the full gain, less any carried-forward losses from the property itself if the loss restrictions allow it. The decision to borrow in a company name should factor in both the income treatment during ownership and the CGT treatment on exit.

Lenders Apply Higher Risk Weightings to Company Borrowers

APS 112 prescribes specific risk weights that apply to residential mortgage exposures based on the classification of the loan, its occupancy status and its LVR. Lenders treating a loan as higher risk pass that cost through to the borrower via higher interest rates or reduced loan amounts. A company borrowing for investment purposes typically faces a margin above the equivalent investor rate for a personal borrower.

Some lenders don't distinguish between company and personal investment loans in their advertised rates, but require larger deposits or additional security when lending to a company. Others simply decline company applications altogether unless the company has substantial trading history and assets. The result is fewer investment loan options and less room to negotiate on price.

The Serviceability Test Focuses on Company Income, Not Director Income

APRA requires all ADIs to assess new borrowers' capacity to service a home loan, including a residential investment loan, at an interest rate that is at least 3.0 percentage points above the loan product rate. When the borrower is a company, the lender assesses the company's capacity to service the debt, not the directors' personal income.

A company with no trading income and no existing rental portfolio can't demonstrate serviceability. The directors might earn substantial salaries elsewhere, but unless they're paying that income into the company as dividends or director loans, it doesn't count. Some lenders will accept rental income projections for the property being purchased, but they discount the projected rent and add the serviceability buffer, which often results in the loan being unaffordable on paper.

In practice, most lenders lending to non-trading investment companies require personal guarantees and then assess serviceability on the guarantors' personal income anyway. The paperwork lists the company as borrower, but the underwriting treats it like a personal application with extra steps. If that's the outcome, the investor should consider whether the company structure delivers any benefit at all.

Debt-to-Income Limits Apply to the Company, Not the Guarantor

APRA activated a DTI lending limit on 27 November 2025, effective from 1 February 2026, applying to all ADIs. Each ADI may lend, measured on a quarterly basis, up to 20 per cent of new investor loans and up to 20 per cent of new owner-occupier loans to borrowers with a total DTI ratio of six times or greater. The limit applies to the borrower entity, which is the company.

A company with zero declared income has an undefined DTI ratio, which some lenders treat as infinite and others refuse to calculate. A company with modest rental income and a large proposed loan amount will breach the six-times threshold immediately. The result is either a declined application or a requirement to inject equity or related-party loans into the company to reduce the borrowing amount.

Foreign Investors Face Additional Restrictions When Using Company Structures

Under the Foreign Acquisitions and Takeovers Act 1975 (Cth), foreign persons, including temporary residents and foreign-owned companies, are generally banned from purchasing established dwellings in Australia from 1 April 2025 to 30 June 2029. A company controlled by foreign persons is itself a foreign person for the purposes of the Act.

An Australian company with foreign shareholders holding more than 20 per cent of the shares may require FIRB approval even if the directors are Australian residents. Application fees for established dwelling exceptions were tripled from 1 April 2025. The cost and delay of seeking approval, combined with the risk of refusal, makes borrowing through a company structure less appealing for foreign investors purchasing established property.

Lenders Mortgage Insurance Costs More for Company Borrowers

Under APS 112, an ADI may reduce its credit risk capital requirement where the exposure is covered by eligible LMI. To be eligible, the insurance must provide cover for all losses up to at least 40 per cent of the higher of the original loan amount and the outstanding loan amount, and must be provided by a lenders mortgage insurer regulated by APRA. LMI premiums for company borrowers are typically higher than premiums for individual borrowers at the same loan amount and LVR.

The premium is calculated based on perceived risk, and lenders treat company borrowers as higher risk. A company borrowing 85 per cent of the purchase price might pay 20 to 30 per cent more in LMI than an individual borrowing the same proportion. The premium is a one-off cost, but it's significant enough to affect the upfront cash required to settle the purchase.

Refinancing a Company-Held Investment Loan Is Harder

Once a property is held in a company name, refinancing becomes more difficult. Fewer lenders compete for the business, which reduces the investor's ability to secure rate discounts or access better loan features. The investor can't simply transfer the property to their personal name without triggering stamp duty and CGT, so they're locked into the company structure unless they're willing to pay the exit costs.

In our experience, investors who borrowed through a company for asset protection reasons sometimes find the lending constraints outweigh the protection benefits. The decision to borrow in a company name should be made with both legal and lending advice, not just one or the other.

If you're weighing up whether to borrow personally or through a company, or if you're trying to refinance an existing investment loan held by a company, call one of our team or book an appointment at a time that works for you.

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