Borrowing against family trust property for your business

Family trusts are part of the furniture in New Zealand. Plenty of business owners set one up years ago to hold the family home, a bach or a rental property, and then forget about it until they need finance. The good news is that trust-owned property can still be used to fund the family business. It just takes a few extra steps, because the trust, not you personally, owns the property. This guide explains how borrowing against family trust property works, what trustees need to do, the documents a lender will want and how to avoid the delays that commonly slow trust loans down.

If you're a director whose home sits in a trust and your company needs funding, this is probably the guide for you.

Can you borrow against family trust property for a business?

Yes. Property owned by a family trust can secure a business loan, as long as the trustees agree and the trust deed allows it. The trustees sign the mortgage because they're the registered owners, and the loan can be made to the trust itself or to a family company or other business the trust is supporting.

With fundU, trust-owned property is treated much like any other security. We lend $20,000 to $1m for business purposes on residential, commercial and industrial property, and some land or lifestyle property case by case. It can be a first mortgage if the property is unencumbered, or a second mortgage behind an existing bank loan.

How does a family trust hold property?

The trustees own the property on behalf of the beneficiaries. As Inland Revenue puts it, trustees of a trust hold money or property for the benefit of its beneficiaries or for purposes allowed by the law.

That has a few practical consequences for borrowing:

• The trustees are the legal owners. The record of title shows the trustees' names, not the trust's name and not the beneficiaries.
• Trustees act together. Decisions about the property, including mortgaging it, are usually made by all the trustees, and each of them normally signs.
• The trust deed sets the rules. It says what the trustees can and can't do, including whether they can borrow, give security, guarantee someone else's debt or lend to beneficiaries.
• The trust is separate from you. Even if you're a trustee and a beneficiary, the property isn't yours personally. That's why a lender needs the trustees, not just you, to agree.

What are the ways a trust can support a business loan?

There are a few common structures. The right one depends on who owns the business, who owns the property and what the trust deed allows.

Structure	Who borrows	The trust's role	When it tends to suit
Trust provides security for a company loan	Your company	Trustees give a mortgage over trust property to secure the company's loan	The business is run through a company and the property is in the trust
Trust borrows directly	The trustees	Trustees are the borrowers and mortgage the property	The trust itself runs the business, or owns the business assets
Trust borrows and on-lends	The trustees	Trustees borrow, then lend the funds to the family business	The deed allows lending to beneficiaries or related entities, and the family prefers this structure
Mixed security	Your company or you personally	Trust property is one of several securities, alongside personal property	More than one property is needed to support the loan

The first structure is the one we see most. A director's company needs funding, and the family home or a rental is held in the family trust. The company borrows, and the trustees provide the property as security. Your lawyer and accountant can help you settle on the structure that fits your trust and your business.

What do the trustees need to do?

The trustees need to confirm they have the power to borrow or give security, agree to it together and sign the documents. In practice, that usually looks like this:

1. Read the trust deed. Check it allows the trustees to borrow, mortgage trust property and, if relevant, give security or guarantees for another party's debt.
2. Check the record of title. Make sure it shows the current trustees. If a trustee has changed, the title may need updating first.
3. Meet and decide. The trustees consider the proposal, including the purpose of the loan and how it will be repaid.
4. Record the decision. A written trustee resolution records that the trustees agreed to the loan or security and why.
5. Involve every trustee. That includes any independent or professional trustee, who may have their own sign-off process.
6. Sign with a lawyer. Each trustee signs the mortgage and loan documents, with a lawyer explaining them. Guarantors do the same.

None of this is unusual. It's the same good process trustees follow for any significant decision about trust property. What catches people out is leaving it until the last minute.

If your trust has an independent or professional trustee, contact them the same day you make your loan enquiry. Their review is often the longest step, and starting it early can save a week or more.

What will a lender need to see?

A lender needs to know who the trustees are, that they can give the security, and that they've agreed to. Have these ready:

• the trust deed, plus any deeds of variation or of appointment and retirement of trustees
• full names and photo ID for every current trustee
• the record of title for the security property, showing the current trustees
• a trustee resolution approving the loan or the security
• details of any existing mortgage on the property, with a recent statement
• information about the business: what it does, what the funds are for and who runs it
• your exit plan, such as a sale, a refinance, a contract payment or business cash flow (our guide to the exit strategy for short-term business loans can help you shape it)
• recent business bank statements or other supporting evidence, such as contracts, invoices or an accountant's letter

fundU doesn't need financial statements or tax returns for the initial assessment. We focus on the property, the purpose and the exit. For more on what we can work with, see our private business loans page.

What are the common hurdles, and how do you solve them?

Most trust loans go smoothly. When they don't, it's usually one of these issues, and nearly all can be solved with a bit of notice.

• The title shows old trustees. If a trustee retired or died and the title wasn't updated, your lawyer will need to register the change. Flag it early.
• The deed is silent or unclear. Older deeds sometimes don't clearly cover guarantees or security for a third party's debt. Your lawyer can advise whether a variation is needed.
• A trustee is overseas. Signing documents abroad takes longer. Plan how and where they'll sign as soon as you enquire.
• A professional trustee has their own process. Independent trustees often need a file review and their own legal sign-off. Start the conversation early.
• A trustee is no longer part of the family picture. After a separation, a former partner may still be a trustee. That needs careful handling, and your lawyer is the right person to lead it.
• Multiple properties in different trusts. Each trust needs its own resolution and signatures, so allow extra time.

How long does a trust-secured business loan take?

It can be quick, but trust loans usually have more signatures and documents than a loan against personally owned property. fundU makes its own lending decisions, so our part moves fast, and funding can happen in as little as 24 hours once approved in some cases. The trust's own steps are often what sets the pace.

To keep things moving:

1. Gather the trust deed and variations before you enquire.
2. Check the title shows the current trustees.
3. Brief every trustee, including any independent trustee, straight away.
4. Agree who will prepare the trustee resolution.
5. Line up lawyers for the trustees and any guarantors early.

Example scenario

A Hawke's Bay orchard services company needed about $220,000 for picking equipment and wages ahead of harvest, with payment from growers due after the season. The directors' family trust owned a rental property in Napier worth around $680,000, with a bank mortgage of $260,000. The trust had two family trustees and an independent trustee.

The company borrowed $220,000, secured by a second mortgage over the trust's rental behind the existing bank loan. The trustees signed a resolution approving the security, the independent trustee completed their review in the first week, and the directors gave personal guarantees. Interest was capitalised through the season, and the loan was repaid from grower payments after harvest. This is an illustrative example only.

Does it matter whether the trust property is the family home or a rental?

For the loan itself, not greatly. Both can secure a business loan, and the lending decision still comes down to the property's value, what's owing on it, its type and location, and your exit. What differs is what's at stake for the family, and that's something the trustees will weigh up.

Many trusts hold a rental or bach alongside the family home. Where there's a choice, trustees often prefer to offer the rental as security first, especially if selling it is part of the exit plan. If the trust holds a commercial or industrial property, that can work well too; our guide on using home equity for business covers the family home in more detail.

Key takeaways

• Family trust property can secure a business loan when the trust deed allows it and the trustees agree.
• The trustees are the registered owners, so they usually all sign the mortgage, including any independent trustee.
• The most common structure is a family company borrowing, with the trust providing security.
• Lenders need the trust deed, current trustee details, an up-to-date title and a trustee resolution.
• Out-of-date titles, unclear deeds and overseas trustees cause most delays, so flag them early.
• fundU lends $20,000 to $1m against trust-owned property on a first or second mortgage.

Talk to us about your trust property

Trust ownership shouldn't stand between a good business and the funding it needs. fundU is a direct private lender, so our own credit team looks at the whole picture, including the trust structure, and makes the decision. Whether it's a second mortgage behind your bank or a first mortgage on an unencumbered property, we'll help you work out the cleanest structure.

When you're ready, start your enquiry or read more about our secured business loans. Enquiring is free, only takes a couple of minutes and has no effect on your credit score. Or call our team on 09 875 4577.