Common Mistakes When Borrowing in a Company Name

Can You Actually Borrow in a Company Name for Investment Property?

Yes, you can borrow in a company name to purchase investment property. Most lenders will consider applications from companies with individual directors acting as guarantors, though the loan sits outside consumer credit protections and typically attracts commercial lending terms.

The appeal is clear enough. A company structure can offer liability protection, tax planning flexibility, and a cleaner succession path if you're building something that lasts beyond your working years. But the mechanics of actually securing finance through a company are different, and the cost structure often catches teachers off guard.

Consider a high school teacher who sets up a proprietary limited company to purchase a rental property. The teacher is the sole director and shareholder. The company applies for an investment loan, and the lender requires the teacher to sign a personal guarantee. If the company defaults, the lender can pursue the teacher's personal assets, including the family home. The liability protection the teacher expected from the company structure does not apply to the loan.

Before you incorporate a company and apply for finance, you need to understand what changes, what stays the same, and where the cost adds up. This article walks through the specific issues that affect teachers borrowing in a company name, including how lenders assess the application, what tax treatment applies, and where the structure makes sense.

How Lenders Treat Company Borrowing Differently

When a company applies for a loan, the lender assesses the company's financials, not just the director's personal income. A newly incorporated company with no trading history and no assets will not meet standard lending criteria on its own. Lenders require personal guarantees from the directors, and in most cases they also assess the director's personal income and living expenses to determine serviceability.

The loan is classified as a commercial loan or business loan, even if the property is a standard residential dwelling. This means the loan falls outside the National Consumer Credit Protection Act. You lose access to hardship provisions, responsible lending obligations, and external dispute resolution through the Australian Financial Complaints Authority. If something goes wrong, your options are more limited.

Interest rates on company loans are typically higher than standard residential investment loans. The margin can range from 0.25 per cent to 1.0 per cent above the equivalent personal investment loan rate, depending on the lender and the size of the loan. For a company loan of $500,000, that margin can add $1,250 to $5,000 per year in interest costs. Some lenders also charge higher application fees and annual fees for company lending.

Lenders mortgage insurance is not available for most company loans above 80 per cent LVR. If you want to borrow more than 80 per cent of the property value through a company, you'll need to find a specialist lender, and the rate premium increases further. The alternative is to contribute a larger deposit upfront, which reduces the immediate leverage benefit of the investment.

We regularly see teachers who set up a company assuming they can access LMI waivers for teachers through the company structure. That's not how it works. Teacher-specific lending benefits, including LMI waivers and professional package discounts, are tied to personal borrowing in your own name. Once the loan sits in a company, those benefits disappear.

What Happens to Negative Gearing and Tax Deductions

When a company owns the investment property, the company is the taxpayer. Rental income and expenses flow through the company's tax return, not your personal return. The company pays tax on its net income at the flat company tax rate, which is currently 25 per cent for base rate entities and 30 per cent for other companies.

If the property makes a loss, that loss stays within the company. You cannot offset it against your teaching salary. This is a fundamental difference from holding the property in your personal name, where rental losses reduce your taxable income and generate a tax refund during the year. For a teacher on a marginal tax rate of 37 per cent, losing access to negative gearing can cost thousands of dollars per year in after-tax cash flow.

Under the changes that took effect from the 2027-28 income year, losses on established residential investment properties acquired after 12 May 2026 can only be offset against other residential property income, not salary, for individuals. However, if you held the property personally before that date, or if the property is an eligible new build, you retain full negative gearing. A company structure removes that choice entirely, regardless of when the property was purchased or whether it qualifies as a new build.

If the company makes a profit, you can access that profit by paying yourself a dividend. Franking credits may attach to the dividend if the company has paid tax, but you'll still pay top-up tax at your marginal rate. The overall tax outcome is often less favourable than holding the property personally, particularly in the early years when the property is negatively geared.

When Does a Company Structure Actually Make Sense

A company structure works when you're operating at scale, when you have specific estate planning needs, or when you're purchasing commercial property where consumer credit protections don't apply anyway. It doesn't typically make sense for a single residential investment property purchased by a teacher with a stable salary.

One scenario where a company structure may be justified is where you're purchasing multiple properties and want to separate liability for each property into different entities. You might hold property A in Company 1 and property B in Company 2, each with separate guarantees and separate financing. If one property underperforms or a tenant dispute arises, the other property is quarantined. That level of complexity is generally relevant once you own three or more investment properties, not when you're buying your first investment property.

Another scenario is where you're purchasing property with a family member or business partner and you want a clear shareholders' agreement that governs decision-making, profit distribution, and exit. A company with a properly drafted constitution and shareholders' agreement can provide more certainty than a tenants-in-common arrangement, though it adds legal and accounting costs every year.

If your goal is simply to protect your family home from creditors, a company structure won't achieve that while you're providing a personal guarantee. The lender will take security over the investment property and require you to guarantee the debt personally. If the company defaults, the lender pursues you, and your family home is at risk. The protection you gain is from other company liabilities, such as a lawsuit from a tenant, but not from the lender.

Company Running Costs and Compliance

Running a company involves ongoing costs that don't apply to personal ownership. You'll pay ASIC annual review fees, which currently sit at several hundred dollars per year depending on the company's size. You'll need to lodge company tax returns, prepare financial statements, and maintain company records. Accounting fees for a company with a single investment property typically run $1,500 to $3,000 per year, compared to $500 to $1,000 for an individual tax return with rental property schedules.

If you want to wind up the company and transfer the property back to your personal name, you'll trigger a change of ownership. That means stamp duty in most states, capital gains tax on the transfer, and legal fees to complete the transaction. The cost of unwinding the structure can easily exceed $20,000 for a property in a major city, which locks you into the structure once it's established.

You also need to keep the company solvent and compliant with directors' duties under the Corporations Act. If the property is negatively geared and the company has no other income, you'll need to lend money to the company or contribute equity to cover the shortfall. If you lend money to the company, the loan should be documented with a formal loan agreement, and the company should pay interest at a commercial rate if you want to avoid Division 7A issues. If you contribute equity, you'll need to issue shares or record it as a capital contribution. Either way, the paperwork adds up.

Personal Guarantees and What They Actually Mean

Every lender will require you to sign a personal guarantee if you're borrowing in a company name. The guarantee is usually unlimited, which means you're personally liable for the full amount of the debt, not just a portion of it. If the company defaults, the lender can enforce the guarantee immediately without first exhausting all remedies against the company.

The guarantee will typically be secured by a mortgage over your family home or any other property you own personally. If you don't have sufficient equity in your personal property, the lender may decline the application or reduce the loan amount. In that sense, borrowing in a company name doesn't increase your borrowing capacity. You're still limited by your personal income, your personal assets, and your personal liabilities.

Some teachers assume that signing a guarantee as a director is less risky than borrowing in their own name. It isn't. The legal exposure is the same. The difference is that you've added a layer of administrative complexity and lost access to consumer credit protections without gaining any meaningful protection from the lender.

The Alternative: Personal Ownership with a Trust

If your goal is tax flexibility and asset protection, a discretionary trust may be a more practical option than a company. A trust allows you to distribute income to beneficiaries each year based on their marginal tax rates, which can reduce the overall family tax burden once the property is positively geared. Losses are typically trapped in the trust, similar to a company, but the structure is more commonly used for residential property and better understood by lenders.

Trusts have their own complexity and cost, including trustee responsibilities, annual tax returns, and the need for a corporate trustee if you want to limit personal liability. But lenders are more familiar with trust lending, and you may retain access to some teacher-specific lending benefits depending on how the trust is structured and who the beneficiaries are. If you're considering a structure beyond personal ownership, speak to an accountant who works with property investors before you commit to either a company or a trust.

For most teachers purchasing their first or second investment property, personal ownership remains the most practical option. You keep the tax benefits, you keep the consumer protections, and you avoid the annual compliance cost. If you already own a property personally and you're looking to refinance or expand your portfolio, read more about investment loan refinancing for teachers and expanding your property portfolio.

If you're weighing up a company structure for your next property purchase, call one of our team or book an appointment at a time that works for you. We'll walk through your specific situation, compare the cost of company lending against personal lending, and connect you with a property tax specialist if the structure makes sense for your circumstances.

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