Can my family trust borrow for the business?

How does borrowing through a trust work?

A trust isn’t a legal person the way a company is. It’s a relationship: a trustee holds and runs assets for the benefit of beneficiaries. business.gov.au describes it simply — a trustee carries out the business on behalf of the trust’s members, and is legally responsible for its operation.

So when “the trust” borrows, the trustee is actually the borrower, acting in its capacity as trustee. That’s why lenders focus on who the trustee is and what the trust deed lets it do.

What will a lender check that it wouldn’t for a company?

Check	Why
The trust deed	Confirms the trustee can borrow and give security
Deed variations	Makes sure the current rules are what the lender is relying on
Trustee identity	Individual or corporate trustee?
Appointor / principal	Who controls the trustee appointment
Trust’s financials and tax returns	The trust’s trading performance
Distributions	Where profits have gone, which affects what’s left to repay
Beneficiaries	Sometimes, for identity and guarantee purposes

None of this is unusual for lenders who handle trusts regularly. It just means a little more paperwork.

Corporate trustee or individual trustee?

Many trading trusts have a corporate trustee — a company whose only job is to act as trustee. business.gov.au notes a company can act as trustee and that this adds a layer of asset protection.

For lending, that protection is exactly why the lender asks the directors of the corporate trustee to sign personal guarantees. Without them, the lender’s recourse would be limited to the trust’s assets. If the trustee is an individual, that person is already directly liable as trustee. More on the mechanics in personal guarantees explained.

Which loans are open to a trust?

The same range as any business:

• Property-secured loans from $20k to $5m, over property owned by the trust or by the directors personally (with their agreement).
• Unsecured and line-of-credit options, typically $5k to $500k, sized on the trust’s turnover and bank statements.

The lender assesses the trust’s trading in the usual way — see what lenders look at first — with the trust documents on top.

What should I gather?

1. The full trust deed and every variation.
2. Trustee details (company extract if it’s a corporate trustee).
3. The trust’s tax returns and financial statements, usually one or two years.
4. Business bank statements for the trust’s accounts.
5. BAS for the trust’s ABN.
6. ID for each director of the trustee and any guarantor.
7. Property details for anything offered as security.

The general business loan document checklist covers the rest.

A common snag: distributions

Trusts often distribute all profit to beneficiaries each year for tax reasons. That’s normal, but it can make the trust’s balance sheet look thin. Lenders understand this; what helps is showing the trust’s cash flow and the distribution pattern, and sometimes the beneficiaries’ positions too. Your accountant can prepare a short explanation.

An illustrative example

A Geelong engineering consultancy trades through a discretionary trust with a corporate trustee owned by two directors. It needs $250k to fit out new premises. The lender reviews the deed (which allows borrowing and security), the trust’s two years of financials and the directors’ guarantees, and takes a second mortgage over one director’s home. A few more documents than a company loan — same outcome.

Should I change structure to borrow more easily?

Rarely worth it for borrowing alone. Restructuring has tax and legal costs, and a new entity starts with no trading record. Talk to your accountant about structure; talk to Mr about the loan.

What if the trust deed doesn’t allow borrowing?

Most modern trust deeds give the trustee broad powers to borrow and give security, but older or unusually drafted deeds sometimes don’t, or restrict it. If a lender spots a problem, the usual fix is a deed variation prepared by a lawyer, following whatever process the deed sets out. That takes time and costs money, so it’s worth having your accountant or solicitor check the deed before you apply rather than discovering it halfway through an application.

How do lenders view a trust’s income?

They look at the trust’s own trading: bank statements, BAS and the trust’s tax returns. Because trusts often distribute profits to beneficiaries, some lenders also consider the beneficiaries’ positions — especially where the people behind the trustee company are also guarantors. Be ready to show where profits went and that the distribution pattern leaves the business able to carry the loan. A one-page note from your accountant explaining the structure and distributions saves a lot of questions.

Does it matter which entity owns the assets?

Yes. Lenders want to know which entity owns the business assets, the property and the bank accounts — the trust, the trustee company, or the individuals. Mismatches are common in family groups and are usually easy to explain, but a simple diagram of who owns what, prepared with your accountant, helps a lender understand the structure in minutes rather than days.

Be ready, too, to explain any loans between the trust, the trustee company and family members. They’re normal in family groups, but a lender will want to understand them before adding a new loan to the mix.

Trading through a trust?

Ask Mr in about 60 seconds and mention the trust structure, who the trustee is and any property involved. There’s no credit check to enquire, your details aren’t shopped around lenders who dislike trusts, and a real person will point you to lenders that handle them smoothly. Accurate structure details on the form save a lot of back-and-forth. See if you qualify.