At Blambles Finance Group, we always look for ways to structure finance that give you more flexibility, control, and long-term strategic benefits. One structure we regularly advise against is cross-collateralisation, where a lender secures multiple properties under a single loan.
Recently, we reviewed a proposal from a major bank suggesting a cross-collateralised loan to fund a commercial property purchase. Here’s why we don’t recommend this approach—and what we suggest instead.
The Problem with Cross-Collateralisation
A lender might suggest a single loan secured by multiple properties because it simplifies things on their end. But for the borrower, it can create unnecessary complications and risks, such as:
- Loss of control – If you want to sell or refinance one property, you’ll need the bank’s approval, which could involve extra valuations, conditions, or restrictions.
- Less flexibility – You’re tied to one lender for multiple properties, making it harder to negotiate better rates or switch banks if needed.
- Equity restrictions – If one property drops in value, the bank may reassess your entire portfolio and limit your ability to access equity.
- Higher costs in the long run – Cross-collateralised loans are typically structured as commercial loans, which may come with higher rates and shorter terms.
A Better Way to Structure Your Finance
Instead of cross-collateralisation, we recommend a structure that separates your residential and commercial loans while still allowing you to leverage equity for the purchase.
Example: Funding a Commercial Property Purchase
Let’s say you own a residential property with equity and want to buy a commercial property. Rather than a cross-collateralised loan, we would suggest:
- Accessing equity from the residential property
- Take out a loan secured only against your existing residential property.
- Structure this as a standard residential loan (typically over 30 years) to take advantage of lower rates and better terms.
- Borrow up to 80% of the property value to extract the equity needed.
- Using this equity as the deposit for the commercial purchase
- Loan the equity funds to the purchasing entity (e.g., a company or trust) for the commercial property.
- Obtain separate finance for the commercial property, secured only against that asset.
Key Benefits of This Approach
✅ Lower-cost funding – The residential equity release can be structured as a home loan, which is typically cheaper than commercial finance.
✅ More flexibility – If you decide to sell one property, there’s no need for the bank to reassess the other property. You keep control.
✅ Better refinancing options – You can negotiate better interest rates and terms by shopping around for different lenders for each asset, rather than being locked into one bank.
✅ Easier access to equity – By structuring it this way, you may be able to use borrowed funds for the deposit instead of tying up personal cash.
Making Sure It Works for You
While this structure is generally more flexible, it’s important to get tax advice to ensure there are no unintended implications—especially if funds are loaned between entities.
If you’re looking to finance a commercial property purchase or restructure your lending, we can help you get the right structure from day one —without unnecessary bank restrictions.
Blambles Finance Group – Finance That Works for You, Not the Bank
Got questions about your finance structure? Get in touch with us today.
