Can Inter-Company Loans or Related-Entity Transfers Affect Finance Approval?

Inter-Company Loans or Related-Entity Transfers Affecting Finance Approval

Yes, inter-company loans and related-entity transfers can affect a home loan, business loan, refinance, equity release or commercial finance application.

This is one of the harder areas for borrowers to understand because the money may be moving within the same family group, business group, company structure or trust structure. To the borrower, it may feel like “our own money”. To a lender, it can raise questions about income, debt, ownership, cash flow, tax, guarantees, serviceability and whether money is being double counted.

This guide explains how lenders may assess inter-company loans, related-entity transfers and related-party business structures, based on current policy research.

What are inter-company loans?

Inter-company loans are loans or balances between related companies.

For example:

• Company A lends money to Company B
• Company B pays expenses for Company A
• one company funds another company’s wages or suppliers
• a holding company lends to a trading company
• a trading company lends to a property company
• a related company pays a deposit on behalf of another entity
• one company owes money to another company at year end

These balances may appear in financial statements as loans, current assets, current liabilities, shareholder loans, related-party loans or amounts owing to related entities.

What are related-entity transfers?

Related-entity transfers are payments between entities that are connected to the same people or business group.

This may include transfers between:

• company and company
• company and trust
• trust and company
• trust and beneficiary
• company and director
• company and shareholder
• business and personal account
• related family companies
• property entity and trading entity
• SMSF and related entity, where relevant

The transfer itself may not be a problem. The issue is what it represents.

Why do lenders care about related-entity transfers?

Lenders care because related-entity transfers can distort the borrower’s true income and liabilities.

A lender may ask:

• is the transfer income?
• is it a loan?
• is it a capital injection?
• is it a dividend?
• is it a trust distribution?
• is it repayment of a prior loan?
• is it reimbursement of expenses?
• is it a director drawing?
• is it an unpaid present entitlement?
• is it moving money around to make bank statements look stronger?
• does one entity depend on another to survive?

The lender needs to know whether the borrower can genuinely afford the loan.

Why is this hard for borrowers to research?

Most public lender pages do not explain how related-entity transactions are treated.

They may mention self-employed income, company financials or trust income, but they rarely explain what happens when:

• multiple entities transfer money to each other
• one company has the profit and another has the debt
• the borrower uses company money for a deposit
• a trust distributes income but does not pay it in cash
• a director loan account is large
• one business supports another business
• company debts are guaranteed personally
• related-party rent is used for servicing
• inter-company loans sit on the balance sheet

These scenarios are usually handled through detailed credit policy and lender judgement.

Are related-entity transfers automatically bad?

No.

Transfers between related entities are common and can be completely legitimate.

They may exist because of:

• tax planning
• group cash management
• shared administration
• asset protection
• property ownership structures
• trading company and holding company arrangements
• trust distributions
• director loans
• shareholder loans
• internal funding
• related-party rent
• management fees

The problem is not the existence of transfers. The problem is unclear, unsupported or risky transfers.

What can related-entity transfers be mistaken for?

A lender may need to make sure transfers are not mistaken for income.

For example, a business bank statement may show large deposits from a related company.

Those deposits could be:

• sales revenue
• loan funds
• repayment of an old debt
• transfer of excess cash
• director contribution
• trust distribution
• reimbursement
• rent
• management fee
• capital injection

If the lender is using business bank statements to verify turnover or income, related-entity deposits can create confusion.

Can related-entity transfers inflate business income?

Yes.

If money is moved between related entities, it may make a business bank account look stronger than it really is.

For example, Company A may receive $80,000 from Company B.

If that $80,000 is counted as income for Company A, but it is really just a loan from Company B, serviceability may be overstated.

A lender may exclude related-entity transfers unless they are clearly genuine trading income.

Can related-entity transfers cause double counting?

Yes.

Double counting is one of the biggest risks.

This can happen where the same income is counted more than once.

For example:

• Company A earns revenue from customers
• Company A transfers money to Company B
• Company B’s bank statements show the transfer as a deposit
• the borrower tries to use both Company A and Company B income

If the lender counts both, the same underlying income may be counted twice.

Lenders try to avoid this.

Can inter-company loans reduce borrowing capacity?

Yes.

If one entity owes money to another entity, the lender may need to know whether repayment is required.

If repayments are required, this can reduce serviceability.

If the debt is not being repaid now but is due later, the lender may still consider it.

The lender may ask:

• what is the balance?
• who owes who?
• is interest charged?
• are repayments required?
• is the loan repayable on demand?
• is it secured?
• is it subordinated?
• does it affect cash flow?
• is it an accounting entry or real cash debt?

Related research: Can a Fully Maintained Company Car Increase Your Home Loan Borrowing Capacity?

Can inter-company loans be ignored?

Sometimes, but not automatically.

A lender may be more comfortable where the inter-company balance is internal to a group and not creating external repayment pressure.

However, the lender may still need accountant confirmation.

They may want to know:

• no external creditor is involved
• repayments are not required in the short term
• the group can continue operating
• the borrower is not using the same income twice
• the debt will not weaken servicing
• the accounting treatment is clear

Internal does not always mean irrelevant.

Can one company’s debt affect another company’s loan?

Possibly.

If the companies are related, the lender may consider whether one company supports the other.

This may happen where:

• the borrower guarantees the other company’s debt
• profits from one company are used to service debts of another
• funds are regularly transferred between entities
• the same director controls both companies
• one company pays the other company’s expenses
• related entities are financially dependent

The lender may ask for financials across the whole group.

Can a profitable company support a weaker related company?

Sometimes, but it can raise questions.

A profitable company may regularly transfer funds to a weaker related company.

A lender may ask:

• why does the weaker company need support?
• will support continue?
• does this reduce the profitable company’s available cash flow?
• is the weaker company’s debt guaranteed by the borrower?
• are losses likely to continue?
• is the group position sustainable?

A strong company can help, but it can also be dragged down by related-entity obligations.

Can a loss-making related company hurt approval?

Yes.

Even if the borrowing entity is profitable, a related loss-making company can matter if the borrower is exposed to it.

The lender may ask:

• does the borrower guarantee the loss-making company’s debts?
• is the profitable company funding the loss?
• is the loss temporary?
• are there director loans payable?
• are capital injections required?
• is there a risk the borrower will need to contribute more funds?

Some policy research highlights trading losses, director loans payable and capital requirements as examples of related-entity issues that can affect serviceability.

Can director loans affect finance approval?

Yes.

Director loan accounts are common in small businesses and can be important in lending assessment.

A director loan may show that:

• the director owes money to the company
• the company owes money to the director
• the director has withdrawn more than salary or dividends
• the director has injected funds into the business
• the business has borrowed from the director
• tax or Division 7A issues may exist

The lender may ask an accountant to explain the director loan account.

What if the company owes money to the director?

This may be positive, neutral or negative.

It may show the director has injected funds into the business.

The lender may ask:

• does the company need to repay the director soon?
• is interest charged?
• is there a repayment schedule?
• is the company dependent on director funding?
• is the business undercapitalised?
• will the director demand repayment after settlement?

If the loan is not being repaid and does not affect cash flow, it may be easier to manage.

What if the director owes money to the company?

This can be more sensitive.

If the director owes money to the company, the lender may ask:

• how did the debt arise?
• are repayments required?
• is it a Division 7A loan?
• is it treated as income?
• does it reduce the company’s cash position?
• are tax obligations current?
• is the director drawing too much from the business?

A large director loan to the borrower may weaken the application if it suggests cash-flow pressure or tax risk.

Can Division 7A loans affect approval?

Possibly.

A Division 7A loan may arise where a private company provides financial accommodation to a related party and the arrangement is treated as a loan for tax purposes.

Some lender policies may not require certain Division 7A loans to be treated like external third-party debt, because they can be internal to the same economic group.

However, lenders may still review:

• repayment obligations
• tax treatment
• company financials
• accountant explanation
• whether cash flow is affected
• whether the borrower has additional commitments

Division 7A should be explained clearly before submission.

Can shareholder loans affect approval?

Yes.

Shareholder loans may appear where shareholders lend money to a company or where the company owes money to shareholders.

A lender may ask:

• is the shareholder loan repayable?
• is interest charged?
• is it subordinated?
• does it need to be repaid from the new loan?
• does it affect company cash flow?
• is it recorded correctly in financials?
• is the shareholder also a borrower or guarantor?

A shareholder loan can be treated very differently depending on its terms.

Can loans between a trust and company affect approval?

Yes.

Loans between trusts and companies can be complex.

The lender may need to understand:

• which entity earned the income
• which entity owes the debt
• whether distributions were paid or retained
• whether unpaid present entitlements exist
• whether the borrower controls both entities
• whether cash is actually available
• whether the structure creates tax obligations
• whether the trust deed allows the arrangement

Accountant commentary is often needed.

Can trust distributions affect approval?

Yes.

Trust distributions can support income, but lenders often require evidence that the distributions are genuine, sustainable and available to the borrower.

A lender may ask:

• which trust made the distribution?
• who controls the trust?
• was the distribution paid in cash?
• was it retained in the trust?
• is it an unpaid present entitlement?
• has it been received consistently?
• is the trust still trading?
• are there related-party transfers behind the distribution?

A trust distribution on a tax return does not always mean cash was received.

Can unpaid present entitlements affect approval?

Possibly.

An unpaid present entitlement occurs where a beneficiary is entitled to trust income but it has not been paid.

From a lending perspective, the issue is whether the income is actually available to service the loan.

A lender may ask:

• has the distribution been paid?
• is the amount still owed by the trust?
• when will it be paid?
• is the trust solvent?
• does the borrower rely on that cash?
• is the entitlement being treated as a loan?
• does the trust have cash or only accounting profit?

Unpaid entitlements can make income less straightforward.

Can related-party rent affect approval?

Yes.

Related-party rent is rent paid between connected parties or entities.

Examples include:

• borrower owns a property and leases it to their own company
• trust owns premises and leases to a related trading company
• company leases property from a related SMSF
• business pays rent to a family trust
• property entity receives rent from the trading entity

A lender may accept related-party rent, but they will often examine whether it is genuine, market-based and not double counted.

Can related-party commercial rent be used as income?

Possibly.

A lender may want to see:

• formal lease agreement
• rent payment history
• market rent support
• business financials of the tenant
• bank statements showing rent paid
• accountant confirmation
• evidence the tenant can afford the rent
• whether the tenant is related to the borrower

If there is no formal lease, some policies allow related-party lease income to be evidenced through financials with corresponding values, but it is lender-specific.

Can related-party rent be double counted?

Yes.

This is a common issue.

For example:

• a trading company pays rent to a property trust
• the borrower owns both the trading company and the trust
• the borrower wants to use both business profit and rental income

The lender may need to ensure rent is not counted twice.

If rent is an expense in the trading company and income in the property trust, the lender must assess the group position carefully.

Can management fees between related entities affect approval?

Yes.

A company may pay management fees to a related company or trust.

The lender may ask:

• why are the fees paid?
• are they recurring?
• are they market-based?
• are they actual cash payments?
• are they tax planning entries?
• does one entity rely on the other?
• are the fees being counted as income elsewhere?

Management fees can reduce profit in one entity and increase income in another, so the lender needs context.

Can related-party wages affect approval?

Yes.

If a borrower is employed by a related company, the lender may apply additional verification.

They may ask for evidence such as:

• ATO income statement
• tax return
• notice of assessment
• payslips
• bank credits
• company financials
• confirmation the borrower is not really self-employed under policy

Some lenders treat borrowers employed by a related party as self-employed if they are directors, shareholders or closely connected to the business.

Can family employment affect approval?

Yes.

Where a borrower is employed by a family business or related party, the lender may want extra proof that the income is real and sustainable.

This is because related-party employment could be adjusted or backdated more easily than independent employment.

The lender may review:

• tax records
• PAYG income statements
• company financials
• bank credits
• ownership structure
• relationship to directors
• whether borrower is a shareholder

If the borrower owns or controls the employer, self-employed policy may apply.

Can backdated ownership changes cause issues?

Yes.

If directorship or shareholding is changed and backdated across the financial years being assessed, lender policy may not accept income from that entity.

This can happen where someone becomes a director or shareholder and tries to use prior financial years as if they owned the business at the time.

Lenders want the income history to match the actual ownership and control history.

Can new related-entity structures cause issues?

Yes.

A newly created company or trust may make income harder to assess.

A lender may ask:

• why was the new entity created?
• did the business restructure?
• where did the trading income move?
• are prior years comparable?
• are the same owners involved?
• were assets or contracts transferred?
• are old entities still liable for debts?
• are inter-company loans created by the restructure?

A restructure can be legitimate, but it needs explanation.

Can restructuring before applying create problems?

It can.

Moving income, assets or debts between entities before applying may create questions.

For example:

• profit is shifted into one entity
• debt remains in another entity
• personal income is increased before application
• director wages are changed
• distributions are altered
• loans are repaid or created
• related-party rent is introduced

A lender may ask whether the new structure is sustainable or designed only for borrowing capacity.

Can a related company’s debt be included in personal servicing?

Yes.

Some lenders may include company debts in personal servicing where company income or profit is used.

This can apply to:

• company overdrafts
• company credit cards
• company loans
• equipment finance
• business vehicle loans
• tax payment plans
• guarantees
• commercial property loans

Policy research includes examples where company overdrafts and company credit card limits are included in servicing when company profits are used.

Can company overdrafts and credit cards be included at full limit?

Yes, with some lenders.

Some policy research indicates that where company profits are used, 100% of company overdraft and company credit card limits may be included in servicing.

This can significantly reduce borrowing capacity.

A borrower may think only the current balance matters, but lender policy may use the approved limit.

Related research: Do Credit Card Limits Affect Your Home Loan Borrowing Power?

Can company debts be excluded from servicing?

Sometimes.

Some lenders may exclude company debts where the business trades profitably or where company debts are considered self-serviced.

Policy research includes examples of lenders that may exclude company debts in servicing in certain scenarios.

However, this depends on lender policy, business profitability, personal guarantees, financials and whether business income is being used.

Can personal guarantees make company debts relevant?

Yes.

If the borrower has personally guaranteed company debt, the lender may consider that exposure.

This may apply to:

• company overdraft
• business loan
• equipment finance
• commercial property loan
• company credit card
• trade finance
• private loan
• tax arrangement

A guarantee can make a company debt relevant even if repayments are made by the company.

Can a company debt be excluded if there is no personal guarantee?

Possibly.

If the borrower is not personally liable, the company is profitable and the debt is clearly serviced by the company, some lenders may be more willing to exclude it.

Evidence may include:

• financial statements
• accountant letter
• loan statements
• bank statements
• proof the company makes repayments
• confirmation no personal guarantee exists
• evidence of sustainable profit

This is lender-specific.

Can the lender ask whether the related entity can service its own debt?

Yes.

Some policy research indicates that where a borrower has given a guarantee or is linked to company or trust debt, the lender may require confirmation that the entity can continue meeting its liabilities without additional financial contribution from the applicant, including under stressed repayment conditions.

This means the lender may look beyond current repayments and consider whether the business would still cope if rates or repayments increased.

Can commercial credit reports reveal related entities?

Yes.

A lender may identify related entities through:

• directorship searches
• company searches
• credit reports
• ASIC records
• business financials
• tax returns
• loan statements
• accountant information
• guarantor details
• bank statement references

If a borrower does not disclose a related entity, the lender may still find it.

Can undisclosed related entities cause problems?

Yes.

Undisclosed related entities can create serious approval issues.

The lender may ask:

• why was the entity not disclosed?
• does it trade?
• does it have debts?
• does the borrower guarantee anything?
• does the borrower receive income from it?
• does it owe money to or from the borrower?
• does it affect servicing?

Non-disclosure can reduce lender confidence.

Can a business name be treated like a related entity?

Not always.

A business name alone is not the same as a separate legal entity.

A business name may belong to:

• sole trader
• partnership
• company
• trust

The lender will focus on the legal entity behind the business name.

A company or trust is different from a registered business name.

Can a sole trader have inter-entity issues?

Yes, but they usually look different.

A sole trader may not have separate companies, but they may transfer money between:

• business account
• personal account
• spouse account
• family trust
• private loan account
• related company
• investment property account

The lender may ask whether transfers are income, drawings, savings, loans or expenses.

Can partnerships have related-entity issues?

Yes.

A partnership may have:

• partner loan accounts
• related company loans
• shared business debts
• profit distributions
• drawings
• capital contributions
• loans to partners
• debts guaranteed by partners

The lender may need to know each partner’s liability and income share.

Can trusts have related-entity issues?

Yes.

Trusts can be complex because income, control and cash may sit in different places.

A trust may have:

• corporate trustee
• beneficiaries
• appointor
• unpaid distributions
• loans to companies
• loans from companies
• beneficiary loan accounts
• related-party rent
• business income
• property income

The lender may need full trust financials and accountant explanation.

Can holding companies affect approval?

Yes.

A holding company may own shares in a trading company or property company.

The lender may ask:

• does the holding company receive dividends?
• does it have debts?
• does it guarantee debts?
• does it lend money to operating entities?
• is income retained or distributed?
• are dividends sustainable?

Holding company income is not always treated like ordinary income.

Can trading companies affect approval?

Yes.

If the borrower owns or controls a trading company, the lender may assess:

• profit
• turnover
• liabilities
• ATO position
• overdrafts
• equipment finance
• director loans
• inter-company loans
• distributions
• cash flow
• director wages
• whether company debts are included

Trading company income often requires deeper review than PAYG income.

Can property companies affect approval?

Yes.

A property company may hold rental properties or commercial premises.

The lender may assess:

• rent received
• property loans
• commercial leases
• related-party rent
• vacancies
• expenses
• debt repayment history
• trust or company structure
• guarantees

If the property company leases premises to a related trading company, both entities may need to be reviewed.

Can related-company rent make an investment property look stronger?

It can, but lenders may be cautious.

A related trading company may pay rent to a property company owned by the same borrower.

That rent may be genuine, but the lender may ask:

• can the trading company afford the rent?
• is the rent market-based?
• is the lease formal?
• are rent payments made regularly?
• is rent already deducted from business profit?
• is the rent being double counted?

The lender may need both the property entity and trading entity financials.

Can related-entity transfers affect bank statement lending?

Yes.

Bank statement lending can be sensitive to related-entity transfers.

If income is verified from deposits, the lender may exclude deposits that are:

• loans
• transfers from related entities
• director contributions
• refunds
• investment transfers
• sale proceeds
• non-trading deposits
• one-off capital injections

Only genuine business income should be used.

Related research: Can You Get a Home Loan with Overdrawn Bank Statements?

Can related-entity transfers affect BAS lending?

Possibly.

BAS shows reported sales, while bank statements show deposits.

If bank deposits include related-entity loans or transfers, the lender may compare them with BAS.

If deposits are higher than BAS sales, the lender may ask why.

If BAS sales are strong but bank deposits are weak, the lender may also ask where the cash is going.

Can related-entity transfers affect full-doc lending?

Yes.

Full-doc lending uses tax returns and financial statements, which often show related-party balances.

The lender may review:

• balance sheet loans
• related-party liabilities
• director loans
• shareholder loans
• trust distributions
• profit and loss transfers
• management fees
• rent between entities
• notes to accounts

A borrower may need accountant commentary to explain these items.

Can related-entity transfers affect alt-doc lending?

Yes.

Alt-doc lending may use bank statements, BAS or accountant declarations.

Related-entity transfers can complicate all three.

The lender may need to know whether deposits represent:

• trading income
• loans
• related-party transfers
• tax refunds
• owner contributions
• internal group movements

If the income cannot be separated clearly, the lender may reduce the amount used.

Can accountant declarations help?

Yes.

An accountant declaration may help explain:

• related-party loans
• director loans
• inter-company balances
• whether debts are repayable
• whether transfers are income
• whether income is double counted
• whether a company trades profitably
• whether company debts are self-serviced
• whether distributions are sustainable
• whether a restructure occurred

The accountant’s explanation should match the financial statements and bank statements.

Can an accountant letter exclude company debts?

Possibly.

Some lenders may consider excluding company debt if an accountant confirms the company is self-sufficient and profitable, and that the borrower is not required to make personal contributions.

However, the lender may still review:

• personal guarantees
• business profit
• company debt statements
• repayment conduct
• cash flow
• financial position
• tax position

An accountant letter helps, but lender policy decides.

Can financial statements explain inter-company loans?

Yes.

Financial statements can show whether inter-company loans are assets or liabilities.

They may include:

• current assets
• current liabilities
• related-party notes
• director loans
• shareholder loans
• trust loans
• loans to related entities
• loans from related entities
• management fees
• rent paid to related entities

A lender may ask for accountant notes if balances are large or unusual.

Can tax returns explain related-party income?

Yes.

Tax returns may show:

• trust distributions
• dividends
• partnership income
• director salary
• interest income
• rental income
• business income
• related-party loan interest

However, tax returns may not show whether cash was actually received.

The lender may still ask for bank statements or financials.

Can bank statements explain related-entity transfers?

Yes.

Bank statements can show whether transfers are regular, one-off, labelled, received from customers or received from related entities.

The lender may review:

• account names
• transaction references
• frequency
• amounts
• counterparty details
• whether transfers match invoices
• whether funds immediately leave again
• whether money circulates between accounts

A circular money trail can raise concerns.

What are circular transfers?

Circular transfers occur when money moves around related accounts and may return to where it started.

For example:

• Company A transfers $50,000 to Company B
• Company B transfers $50,000 to the borrower
• the borrower transfers $50,000 back to Company A

This can create the appearance of income, savings or turnover without adding real external cash flow.

Lenders may exclude circular transfers.

Can circular transfers affect approval?

Yes.

Circular transfers can make the borrower’s finances look unclear.

The lender may ask:

• why did the money move?
• was it income?
• was it a loan?
• did it create a liability?
• was it used to support deposit?
• does it inflate bank statement turnover?
• was it tax planning or cash-flow management?

Clear documentation is essential.

Can related-entity transfers affect savings?

Yes.

If a borrower’s deposit comes from related-entity transfers, the lender may ask whether the funds are:

• personal savings
• business funds
• director drawings
• dividends
• trust distributions
• shareholder loan repayment
• borrowed funds
• company money
• tax-provision funds

Funds held in a business account may not be treated the same as personal savings unless the lender is satisfied with the source and availability.

Can business funds be used for a home deposit?

Possibly.

A self-employed borrower may use business funds for a deposit, but the lender may ask:

• are funds surplus to business needs?
• will taking funds harm the business?
• are tax obligations covered?
• are wages and suppliers current?
• is the borrower entitled to withdraw the funds?
• is it a dividend, drawing, loan or distribution?
• does accountant confirm availability?

Funds in a company account are not automatically personal funds.

Can company money be used personally?

Possibly, but it needs accountant advice.

A company is a separate legal entity.

Taking money from a company may be treated as:

• salary
• dividend
• director loan
• reimbursement
• repayment of funds owed to director
• franked distribution
• Division 7A loan
• capital return

The tax and lending treatment depends on how the withdrawal is recorded.

Can trust money be used personally?

Possibly, but it depends on the trust deed and accounting treatment.

Funds from a trust may be treated as:

• distribution
• beneficiary entitlement
• beneficiary loan
• repayment of an amount owed
• trustee payment
• related-party loan

The lender may need accountant confirmation that the borrower can use the funds.

Can related-entity transfers affect funds to complete?

Yes.

Funds to complete can be affected if settlement money comes from a company, trust or related entity.

The lender may ask:

• who owns the account?
• is the borrower entitled to the funds?
• are funds repayable?
• are taxes payable?
• is the entity still able to operate?
• are the funds a gift, loan, dividend or distribution?
• is the source documented?

A borrower should not move business funds into personal accounts without advice.

Can inter-company loans affect cash out?

Yes.

If a borrower wants cash out to move funds into a related company, the lender may assess it as business-purpose cash out.

The lender may ask:

• which entity receives the funds?
• what will funds be used for?
• is it a loan or capital injection?
• will the borrower be repaid?
• is the business viable?
• are funds for working capital, debt refinance, equipment or tax debt?
• is the purpose acceptable under policy?

Cash out to related entities needs a clear purpose.

Can equity release to a company be approved?

Possibly.

A borrower may release equity from a property and lend or contribute it to their company.

The lender may require:

• clear loan purpose
• business purpose explanation
• company details
• ownership evidence
• accountant letter
• invoices or debt statements
• confirmation of benefit to the borrower
• servicing assessment
• LVR within policy

Some lenders restrict business-purpose cash out, especially at high LVR.

Can equity release to a trust be approved?

Possibly.

A borrower may release equity to support a trust, but the lender will need to understand the structure.

They may ask:

• does the borrower control the trust?
• is the borrower a beneficiary?
• what is the trust using funds for?
• is it a loan or contribution?
• will the trust repay the borrower?
• does the trust deed allow the transaction?
• does the borrower benefit?

Trust-related cash out can be complex.

Can business debt refinance across related entities be approved?

Possibly.

A borrower may want to refinance debts held by a related company or trust.

The lender may ask:

• whose debt is being refinanced?
• who is legally liable?
• does the borrower guarantee the debt?
• will the debt be paid directly?
• does the borrower receive benefit?
• is the related entity profitable?
• is the purpose acceptable?
• are all debts verified?

Refinancing another entity’s debt is more complex than refinancing personal debt.

Related research: Can You Refinance Business Debt into a Home Loan?

Can a borrower refinance a related company’s overdraft?

Possibly.

The lender may assess:

• company ownership
• director guarantees
• overdraft limit
• current balance
• repayment conduct
• whether the facility will close
• business purpose
• benefit to borrower
• whether servicing includes company debts

If the borrower is not liable and does not clearly benefit, the lender may be cautious.

Can a borrower refinance a trust debt?

Possibly.

A trust debt may be refinanced if the structure is acceptable.

The lender may review:

• trust deed
• trustee
• beneficiaries
• guarantors
• debt statements
• repayment conduct
• purpose
• security ownership
• whether the borrower benefits
• tax and legal advice

Trust debt refinance is lender-specific.

Can related-party tax debt affect approval?

Yes.

If a company or trust has ATO debt, the lender may consider whether the borrower is exposed.

They may ask:

• which entity owes the ATO?
• is there a payment plan?
• are payments current?
• are lodgements up to date?
• is the borrower a director?
• could director penalty obligations apply?
• is the business income being used for servicing?
• will the loan repay the tax debt?

Tax debt in a related entity can affect the borrower’s overall risk profile.

Can an ATO payment plan in a company affect personal borrowing?

Possibly.

If the borrower relies on company income, the lender may consider the company’s ATO payment plan as part of the business’s obligations.

Even if the debt is in the company name, it may affect income sustainability.

The lender may ask for ATO statements, payment plan evidence and proof of payments.

Can related-entity transfers hide ATO issues?

They can raise questions.

If bank statements show transfers to or from related entities around tax payment dates, the lender may ask whether the business is managing tax obligations properly.

For example:

• one company lends money to another to pay GST
• a director injects funds to pay PAYG
• tax-provision funds are moved into a personal deposit account
• company cash is withdrawn before tax is paid

The lender may want accountant explanation.

Can a related entity’s trading losses affect approval?

Yes.

If the borrower has to support that entity, trading losses can affect serviceability.

A lender may ask whether the borrower will need to inject more capital.

They may consider:

• ongoing losses
• accumulated losses
• negative equity
• overdraft usage
• director loans payable
• unpaid tax
• related-party funding
• business viability

A related entity does not need to be the borrower to matter.

Can a related entity’s capital requirements affect approval?

Yes.

If a business needs more capital, the lender may consider whether the borrower will need to contribute.

This can affect serviceability.

Examples include:

• new equipment purchase
• stock funding
• tax debt
• growth funding
• working capital shortage
• legal dispute
• franchise fees
• lease bond
• construction or fit-out costs

If the borrower is likely to fund these costs, the lender may ask questions.

Can related-entity transfers affect living expenses?

Sometimes.

Regular transfers from a business account to personal accounts may support living expenses.

The lender may assess whether those transfers are:

• salary
• drawings
• dividends
• loan repayments
• distributions
• reimbursements
• irregular withdrawals

If personal spending is paid by the company, the lender may need accountant explanation.

Can personal expenses paid by the company affect approval?

Yes.

Personal expenses paid by a company can make income harder to assess.

The lender may need to know whether these are:

• wages
• fringe benefits
• director drawings
• shareholder loans
• add-backs
• personal expenses through the business
• legitimate business expenses

Some expenses may be added back in certain policies, but not all.

Can add-backs help with related entities?

Sometimes.

Add-backs may help where financial statements include expenses that are non-cash, one-off or personal in nature.

Examples may include:

• depreciation
• one-off expenses
• excess superannuation above required amounts
• interest expenses
• private expenses paid by the business

However, add-backs are lender-specific and must be supported by financials.

Can related-entity transfers affect dividends?

Yes.

Dividends may be used as income by some lenders, but the lender may review whether they are sustainable.

They may ask:

• did the company earn enough profit?
• were dividends paid in cash?
• is the company retaining enough working capital?
• are there debts or ATO obligations?
• are dividends from related entities?
• is dividend income one-off?

A dividend funded by borrowings or related-entity transfers may be weaker.

Can related-entity transfers affect investment income?

Yes.

If investment income comes from related companies, trusts or managed structures, the lender may need to verify it.

They may ask:

• source of income
• ownership
• sustainability
• cash receipt
• tax returns
• statements
• trust or company financials
• whether income is actually available

Investment income from related structures can be more complex than dividends from listed shares.

Related research: Can You Use Investment Income from Shares or Managed Funds for a Home Loan?

Can related-party loans affect credit history?

They may not appear on a consumer credit report, but they can still affect credit assessment.

If a related-party loan is in arrears, disputed or subject to legal action, it can affect lender confidence.

If a related-party loan is secured by property or business assets, it can affect settlement and security.

Can related entities affect credit enquiries?

Yes.

A borrower may have directorships or guarantees linked to commercial credit enquiries.

The lender may ask:

• which entity made the enquiry?
• was a loan approved?
• does the borrower guarantee it?
• is the debt still outstanding?
• is it disclosed in liabilities?
• does it affect servicing?

Commercial enquiries can reveal related-entity activity.

Can a related entity’s default affect approval?

Possibly.

If a company associated with the borrower has defaults, judgments or insolvency events, the lender may consider the borrower’s risk profile.

They may ask:

• was the borrower a director?
• did the borrower guarantee the debt?
• is the default paid?
• does the company still trade?
• was the default related to tax?
• are there other undisclosed debts?

A company default is not always the same as a personal default, but it can matter.

Can a director’s company insolvency affect approval?

Yes.

Some lenders consider whether a director has been involved in insolvent entities.

The lender may assess:

• timing
• whether the borrower was a director
• whether personal guarantees were involved
• whether debts remain
• whether tax debts exist
• whether the borrower has recovered financially
• current business stability

This can affect both personal and business lending.

Can related-entity transfers affect guarantees?

Yes.

A borrower may guarantee debts across a group of entities.

The lender may ask for:

• list of guarantees
• facility limits
• borrowers
• security
• repayment conduct
• whether guarantees have been called
• whether companies can service their own debts
• whether guarantee exposure should be included

Guarantees can be invisible until a lender asks.

Can guarantees be excluded from servicing?

Sometimes, but not always.

A lender may be comfortable where the guaranteed entity is financially strong and can service the debt independently.

Evidence may include:

• financials
• loan statements
• accountant letter
• repayment conduct
• cash-flow evidence
• confirmation no personal contributions are required

However, if the entity is weak, the guarantee may be treated as a real risk.

Can related-entity transfers affect company or trust borrowing?

Yes.

If the borrower itself is a company or trust, lenders may review related-entity transactions closely.

They may ask:

• does the borrower trade?
• does it sell services to related entities?
• does it receive only passive income?
• does it have creditors, debtors or stock?
• is it owned by a trading company?
• does it derive rent, dividends or trust distributions from related entities?

Some policies distinguish non-trading entities from trading entities, including whether services are provided to related entities.

Can a non-trading company still receive income from related entities?

Sometimes.

Some lender policies may allow passive income such as rent, dividends, interest or trust distributions, including from related entities, while still considering the entity non-trading.

However, if the entity sells products or services to related entities or has creditors, debtors or stock, it may be treated as trading.

This distinction can affect whether the borrower entity is acceptable.

Can management services to a related entity make a company trading?

Possibly.

If an entity provides management, administration or clerical services to a related entity, some policies may treat this differently from selling products or services commercially.

However, lender definitions vary.

The lender may ask what the entity actually does and whether it has creditors, debtors, stock or production activity.

Can related entities affect LMI waivers?

Yes.

Some professional LMI waiver policies allow lending or property ownership through related company or trust entities if direct ownership or directorship by the qualifying professional is evident.

Other policies may exclude company or trust structures from certain waivers.

The structure needs to be checked before assuming a professional waiver applies.

Can a related entity own the property?

Possibly.

Property may be owned by:

• individual
• company
• trust
• related company
• spouse
• family trust
• corporate trustee

The lender will assess borrower type, security owner, guarantors and whether the qualifying person is involved.

Ownership through a related entity can affect rates, LVR, product eligibility and documentation.

Can spouse or related-entity ownership affect approval?

Yes.

If the property or borrowing is in a spouse’s name or related entity name, the lender may ask:

• who is the borrower?
• who is the security owner?
• who guarantees?
• who receives benefit?
• who services the loan?
• does policy allow the structure?
• does any waiver still apply?

The person with the income is not always the legal borrower or owner.

Can related-entity transfers affect loan purpose?

Yes.

If funds move between entities, the lender may need to classify the loan purpose correctly.

For example:

• funds released from a home loan to a company may be business-purpose cash out
• funds moved to a trust may be investment or business purpose
• funds used to repay a related company may be debt refinance
• funds used to pay a director loan may be private debt refinance
• funds used to pay ATO through a company may be tax debt refinance

Loan purpose affects lender appetite.

Can related-entity transfers affect responsible lending?

Yes.

For consumer loans, lenders need to understand the borrower’s actual obligations.

If related-entity debts or guarantees are hidden, the loan may appear more affordable than it really is.

The lender may also need to consider whether cash out to a related business is suitable and lawful.

Can related-entity transfers affect commercial lending?

Yes.

Commercial lenders usually examine the full group structure.

They may review:

• group cash flow
• related-party loans
• inter-company balances
• shareholder loans
• director guarantees
• property ownership
• tenant relationships
• tax obligations
• trading risk
• debt ranking

Commercial lenders often want a group diagram or structure explanation.

Can a group structure diagram help?

Yes.

A simple structure diagram can make the application much clearer.

It may show:

• each company
• each trust
• trustees
• directors
• shareholders
• beneficiaries
• property ownership
• business ownership
• debts
• guarantees
• income flow
• related-party rent
• inter-company loans

This can help the lender understand the transaction quickly.

Can a cash-flow explanation help?

Yes.

A cash-flow explanation can show where money comes from and where it goes.

For example:

• customers pay Trading Company Pty Ltd
• Trading Company pays rent to Property Trust
• Property Trust pays loan on commercial premises
• Trading Company pays director salary to borrower
• borrower uses salary for home loan servicing

This helps avoid double counting and confusion.

Can an accountant prepare the explanation?

Yes.

An accountant is often the best person to explain related-entity transactions.

They may provide:

• group structure chart
• inter-company loan explanation
• director loan account explanation
• trust distribution explanation
• related-party rent confirmation
• debt servicing confirmation
• tax position confirmation
• add-back explanation

The explanation should be factual and consistent with financial statements.

Can a broker help present related-entity structures?

Yes.

A broker can help translate the structure into lender-friendly language.

They may prepare:

• loan purpose notes
• entity relationship summary
• income verification summary
• liability summary
• cash-out explanation
• refinance purpose explanation
• servicing notes
• documents checklist

This matters because unclear related-entity files can be declined or delayed.

What documents may be needed?

Depending on the scenario, a lender may ask for:

• company tax returns
• trust tax returns
• financial statements
• profit and loss statements
• balance sheets
• BAS
• business bank statements
• personal bank statements
• trust deed
• company extracts
• ASIC documents
• accountant letter
• group structure chart
• loan agreements
• director loan account explanation
• shareholder loan confirmation
• inter-company loan details
• commercial lease
• related-party rent evidence
• loan statements
• guarantee details
• ATO statements
• source-of-funds evidence

The exact documents depend on lender and loan type.

What should an accountant letter include?

A useful accountant letter may explain:

• group structure
• ownership and control
• which entities trade
• which entities are passive
• which entities own property
• inter-company loan balances
• whether related-party debts are repayable
• whether repayments are required
• whether transfers are income or loans
• whether company debts are self-serviced
• whether the business trades profitably
• whether ATO obligations are current
• whether funds can be withdrawn without harming the business

The letter should not contradict the financials.

What should a related-entity transfer explanation include?

A clear explanation should cover:

• date of transfer
• amount
• payer
• receiver
• relationship between entities
• purpose of transfer
• whether it is income, loan, reimbursement or capital
• whether repayment is required
• whether interest is charged
• whether it is recurring or one-off
• where it appears in financial statements

This can help the assessor avoid treating the transfer incorrectly.

What should an inter-company loan explanation include?

A strong explanation should cover:

• borrower entity
• lender entity
• original amount
• current balance
• reason for loan
• interest rate
• repayment terms
• whether repayments are being made
• whether loan is repayable on demand
• whether it is subordinated
• whether it affects cash flow
• whether it will be repaid from the new loan

This helps the lender decide whether to include it as a liability.

What should a related-party rent explanation include?

A related-party rent explanation should cover:

• property owner
• tenant
• relationship between parties
• lease amount
• lease term
• market rent support
• payment history
• whether rent is included in business expenses
• whether rent is included as income elsewhere
• whether rent is being double counted

This is especially important when the borrower controls both landlord and tenant.

What should a director loan explanation include?

A director loan explanation should cover:

• whether the company owes the director or the director owes the company
• how the balance arose
• current balance
• repayment terms
• tax treatment
• whether interest applies
• whether repayments affect cash flow
• whether Division 7A applies
• whether the debt is expected to be repaid

Director loan accounts are often misunderstood by lenders and borrowers.

What should your broker check?

Your broker should check:

• whether the lender accepts the borrower structure
• whether related-party income can be used
• whether company debts are included or excluded
• whether guarantees are relevant
• how related-entity transfers affect bank statement income
• whether trust distributions are acceptable
• whether inter-company loans affect serviceability
• whether cash out to a related entity is acceptable
• whether related-party rent is double counted
• whether a commercial lender is more suitable

This should be checked before the application is submitted.

What should your accountant check?

Your accountant should check:

• tax treatment of transfers
• director loan accounts
• Division 7A issues
• shareholder loans
• inter-company balances
• trust distributions
• unpaid entitlements
• related-party rent
• whether funds can be withdrawn
• whether company debts are self-serviced
• whether the business can support repayments

The accountant’s records should align with the lending story.

What should your solicitor check?

Your solicitor may need to check:

• trust deed powers
• loan agreements
• related-party loan documents
• guarantees
• property ownership
• company authority
• trustee authority
• security arrangements
• commercial leases
• refinance payout documents
• whether related-party transactions create legal risk

Legal advice matters where entities lend to each other or provide security.

10 common mistakes with related-entity finance

1. Do not assume related-company transfers are automatically income.
2. Do not double count the same income in two entities.
3. Do not ignore company debts because they are not personal.
4. Do not hide personal guarantees.
5. Do not use business funds for a deposit without explaining the source.
6. Do not assume trust distributions were received in cash.
7. Do not backdate ownership changes and expect the lender to ignore it.
8. Do not ignore director loan accounts.
9. Do not assume related-party rent is accepted without evidence.
10. Do not submit a complex group structure without accountant explanation.

How to improve your chances of approval

You can improve your chances by making the structure easy to understand.

Helpful steps include:

• prepare a group structure chart
• identify all related entities
• explain all major transfers
• separate income from loans
• avoid double counting
• disclose company debts and guarantees
• provide financials for relevant entities
• explain director and shareholder loans
• provide trust distribution evidence
• document related-party rent
• keep business and personal accounts clean
• obtain accountant commentary early
• choose a lender comfortable with complex self-employed structures

A clear file gives the lender confidence. A confusing file creates policy risk.

Should you wait before applying?

Sometimes.

Waiting may help if:

• financials do not clearly explain related-party balances
• accountant commentary is not ready
• recent transfers look unusual
• business bank statements contain large unexplained deposits
• ownership was recently restructured
• ATO debt is unresolved
• company debts need to be reduced
• personal guarantees are unclear
• trust distributions have not been paid

You may not need to wait if:

• the structure is stable
• financials are complete
• related-entity transactions are well documented
• business income is strong
• company debts are self-serviced
• lender policy fits the structure
• accountant and broker explanations are ready

A broker can help decide whether the file is ready or needs more preparation.

Example scenarios

Scenario 1: Trading company pays rent to related property trust

A borrower owns a trading company and a family trust that owns the business premises.

The trading company pays rent to the trust.

The lender reviews the lease, business financials and rent payments to ensure the rent is genuine and not double counted.

Scenario 2: Company transfers money to personal account for deposit

A company director transfers $120,000 from the company account to their personal account for a home deposit.

The lender asks whether the money is salary, dividend, director loan, repayment of funds owed, or another type of withdrawal.

Scenario 3: Related company deposits inflate bank statements

A business bank statement shows large deposits from a related company.

The lender excludes those deposits from turnover until the accountant confirms whether they are trading income or loans.

Scenario 4: Company debt included in personal servicing

A director uses company profits to support a personal home loan.

The lender includes the company overdraft and credit card limits in servicing, reducing borrowing capacity.

Scenario 5: Company debts excluded with evidence

A profitable company has business loans that are clearly paid by the company.

The lender considers excluding the debts after reviewing financials, repayment conduct and accountant confirmation.

Scenario 6: Trust distribution not paid in cash

A borrower’s tax return shows a trust distribution, but the cash remained in the trust.

The lender asks whether the income is actually available and whether it should be used for servicing.

So, can inter-company loans or related-entity transfers affect finance approval?

Yes. They can affect income, liabilities, deposit source, cash out, debt refinance, guarantees, company debt treatment, trust income, bank statement verification, BAS assessment, full-doc assessment and commercial lending.

The strongest applications usually have:

• clear group structure
• stable entities
• complete financials
• clean bank statements
• related-party transfers explained
• no double counting
• company debts clearly self-serviced or included
• trust distributions supported
• director loans explained
• accountant commentary
• lender policy that accepts the structure

The weakest applications usually involve unexplained transfers, circular money movements, related-party rent with no lease, unpaid trust distributions, large director loans, backdated ownership changes, undisclosed guarantees, loss-making related entities, company debts ignored without evidence or business funds used personally without explanation.

Inter-company loans and related-entity transfers are not automatically bad, but they must be explained properly.

Need help with finance involving related entities?

A mortgage broker can help compare lenders for self-employed borrowers, company directors, trusts, company borrowers, related-party transfers, inter-company loans, business debt refinance, related-party rent, complex business structures and property-backed business finance.

We can review your structure, financials, bank statements, trust distributions, company debts, guarantees, director loan accounts, business funds, loan purpose and lender options before you apply.

If money moves between your companies, trusts or personal accounts, speak with a mortgage broker before assuming the lender will treat those transfers as income.