Selling a property that secures your business loan: the four ways through settlement

Yes, you can sell a property that secures a business loan. The catch is that the buyer gets a clear title on settlement day, so the lender’s mortgage or caveat has to come off at the same moment. There are four ways to make that happen: pay the loan out, get a partial release, move the security to another property, or refinance the balance first. Pick one before you sign a contract, not after.

This guide treats the sale as decided. It covers how each route works, what the lender will ask for, and the paperwork that holds up settlements most often.

Why does the lender have to agree to the sale?

When a loan is secured over property, the lender holds a registered mortgage or a caveat on the title. A buyer’s conveyancer won’t settle until every one of those interests is removed or set to come off at settlement. So the lender has to take part, even if the loan itself is going well.

Most secured loan contracts also say you can’t sell or deal with the security without the lender’s consent. Read yours before you list. If the loan is behind a first mortgage, both lenders are involved: the first mortgagee is paid first, then the second, then you get what’s left.

None of this is unusual. Lenders deal with sales every week. Problems only start when the owner tells them late, or when the numbers don’t cover everything that has to be paid on the day.

What are the four ways through settlement?

Route	How it works	Suits	Watch for
Full payout	Sale proceeds repay the loan at settlement; the mortgage is discharged	Sales where the net price clearly covers every debt on the title	Fees, break costs and daily interest in the payout figure
Partial release	Lender releases one property for a set release price and keeps its mortgage on the others	Loans secured over two or more titles	Release price is often more than that property’s share of the debt
Substitution of security	Mortgage moves to a property you’re buying or already own	Owners selling one property and keeping or buying another	Needs a valuation and lender approval; not every lender offers it
Refinance the balance first	A new loan, secured elsewhere or unsecured, clears the old one before or at settlement	Owners who want the sale proceeds for something else	Needs a new approval in time for settlement

1. Full payout from the sale proceeds

The simplest route. Your conveyancer asks the lender for a payout figure for the settlement date. On the day, the lender is paid directly from the buyer’s funds and lodges a discharge of mortgage (or withdraws its caveat). Most settlements now happen electronically, so the payments and the discharge go through together.

A payout figure usually includes the principal, interest accrued to the settlement date, any discharge or early repayment fees, and a daily amount in case settlement moves. Ask for it itemised.

2. Partial release when the loan sits over several properties

Plenty of business loans are secured over two titles: the family home and an investment unit, or a factory and a residential block. If you’re selling one, the lender can release just that title. The NSW registrar’s guidelines, for example, allow a discharge of mortgage to cover only part of the land in a mortgage. Other states have similar processes.

The lender sets a release price: the amount it needs to receive to let that property go. It then re-checks that the remaining property still covers what’s left. Expect the release price to be more than an even split, because the lender wants a buffer on what remains. If a fresh valuation of the remaining property comes in low, our guide to a low valuation covers the options.

3. Moving the security to another property

If you’re selling one property and buying another, the lender may agree to swap its mortgage onto the new one. This is called substitution of security. The lender values the new property, checks it fits their rules, and registers a new mortgage as the old one is discharged. When it works, the loan carries on and the sale proceeds stay free for the purchase.

The timing has to line up. If the purchase settles after the sale, there’s a gap where the lender has no security, and most won’t accept that. A short bridge or a single settlement day for both is the usual fix.

4. Refinancing the balance before settlement

Sometimes you need the sale money for something else: paying the ATO, buying stock, or reducing a home loan. Then the business loan has to move. A new loan secured over another property, a second mortgage behind your home loan, or an unsecured loan sized on turnover can replace it. The new lender pays out the old one, and the title on the property being sold is clear for settlement.

Not sure which of the four fits your numbers? Tell us about the property and the loan and a specialist will talk you through it. There’s no credit check to enquire.

How do you work out whether the sale covers the debt?

Start with the price and take everything off it that leaves at settlement. Here’s an illustrative worksheet with invented figures.

Item	Amount
Contract price	$780,000
Agent’s commission and marketing	−$19,500
Conveyancing and settlement costs	−$2,500
First mortgage payout (home loan)	−$410,000
Business loan payout, including fees and interest to settlement	−$265,000
Left after settlement	$83,000

On those figures, the sale clears both loans. Now change one thing: the property sells for $700,000 instead. The money left falls to only a few thousand dollars, before any tax set aside. Change the price again and the sale can’t settle without extra money.

Run this sum before you accept an offer. If the margin is thin, choose a route now rather than hoping the price comes in high.

What holds up settlement most often?

The ATO clearance certificate

This one catches business owners every year. From 1 January 2025, every Australian resident selling Australian real property needs a clearance certificate for the buyer, whatever the price. Without one, the buyer must withhold up to 15% of the price and pay it to the ATO, according to the ATO’s guidance for Australian residents.

On a $780,000 sale, up to $117,000 could be held back. In the worksheet above, that turns a surplus into a shortfall, and the lenders can’t be paid in full. The ATO says processing can take up to 28 days, and each registered owner needs their own. Apply when you list, not when you sign.

Late payout figures

Lenders need time to calculate a payout and prepare the discharge. Ask early, then ask again with the confirmed settlement date. If you have a second mortgage or caveat lender, make sure both are on the settlement and know the order they’re paid in.

Arrears or a loan already past its term

If repayments are behind or the loan has passed its expiry, the payout may include default fees or extra interest. The sale is often the exit the lender has been waiting for, so a frank conversation helps. Our page on when the exit slips covers how to handle a lender when timing has moved.

Tax you forgot to keep aside

If the property isn’t your main residence, capital gains tax may apply. The ATO notes that CGT is part of your income tax, not a separate tax, so it’s paid later through your return, not at settlement. See the ATO’s page on CGT on the sale of property. Don’t put every dollar of surplus into the business. Ask your accountant for an estimate and keep it in a separate account.

When should each step happen?

When	What to do
Before listing	Read the loan contract; tell the lender you plan to sell; ask whether a partial release or substitution is possible
At listing	Apply for the ATO clearance certificate; run the net proceeds worksheet with your accountant
Before accepting an offer	Get a written payout figure; confirm the minimum price that clears every debt and the tax set-aside
Contract signed	Send the contract and settlement date to every lender on title; start any refinance or substitution application
Two weeks before settlement	Confirm updated payout figures and the daily amount; check the clearance certificate is with your conveyancer
Settlement day	Lenders are paid, mortgages and caveats come off, and the balance goes to you

An illustrative example

Every detail here is invented. A Geelong builder’s company owes $340,000 on a business loan secured over two properties: the director’s home and a rental unit. The director wants to sell the unit for about $560,000 and use part of the money to clear an ATO debt.

The lender sets a release price of $300,000 for the unit, leaving $40,000 secured over the home. After agent costs and the payout, about $244,000 is left. The director puts $70,000 aside for CGT on the accountant’s advice and uses the rest to clear the ATO account in full. The clearance certificate was ordered the week the unit was listed, so the buyer withholds nothing.

If the release price had been too high to leave enough for the ATO, the alternative would have been refinancing the whole $340,000 against the home before settlement and keeping more of the sale money. Same sale, different route.

Is selling the right move at all?

Not always. If the property is the business’s only real security, selling it can close off future borrowing. If the business is losing money at its core, clearing a loan with a sale only buys time; the margins need fixing with your accountant first. And if the sale is your planned exit from a short-term loan, our asset sale exit page shows how lenders judge whether that plan holds up.

For many owners, though, a sale is the cleanest way out of expensive debt. The exit plan builder helps you set out the dates and figures before you talk to anyone.

Selling, refinancing or both: let’s look at your numbers

A property sale with a business loan on the title is a sequencing problem. Get the order right and it settles quietly. Get it wrong and a buyer, two lenders and the ATO are all waiting on each other. We help owners line these up all the time, including when the file has defaults, ATO debt or a bank decline in it. Our own lending covers property-secured loans from $20,000 to $5,000,000 against residential or commercial property, and unsecured or cash-flow loans typically from $5,000 to $500,000.

The enquiry takes about 60 seconds, and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so your phone won’t light up with strangers. A real person reads your situation and calls you to talk through the route that fits: payout, release, swap or refinance.

Please fill the form in accurately. Tell us which property is selling, roughly what it should fetch, what’s owed on it and what you want the money for. Honest numbers mean the first option we suggest is the right one.

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