Can You Get a Second Mortgage with Bad Credit in Australia?

Accessing business finance with a poor credit history can feel impossible especially through traditional lenders. Banks tend to rely heavily on rigid credit criteria, leaving many small to medium-sized business owners without the capital they need to operate, expand, or stabilise.

But credit issues don’t have to stop your business from moving forward. If you own property, a second mortgage with bad credit can be a practical way to unlock equity and secure the funds your business needs. Through non-bank and private lenders, this solution offers flexibility, speed, and approval criteria that are far more asset-focused than your credit report.

In this guide, we’ll explain how a second mortgage works, how it can benefit your business even if you have bad credit, and how Innovate Funding can help you access tailored finance solutions.

What is a Second Mortgage?

A second mortgage is a secured loan that sits behind your existing mortgage. It allows you to borrow additional funds using the equity in your property without refinancing your current loan. The original lender retains first priority, and the second mortgage lender is repaid next in the event of a sale. When used for business purposes, a second mortgage can be a powerful tool for:

• Injecting working capital

• Bridging cash flow gaps

• Purchasing stock or equipment

• Business expansion or acquisitions

• Consolidating business debts

• Paying tax obligations

• Covering legal or operational costs

A second mortgage with bad credit works similarly, but the approval process places more emphasis on the property’s equity and your repayment plan, rather than past credit mistakes.

Can You Get a Second Mortgage with Bad Credit in Australia?

Yes. In fact, a second mortgage with bad credit is one of the most common funding solutions offered by non-bank and private lenders in Australia. Unlike banks, who base approvals largely on your credit history, private lenders focus on:

• The amount of usable equity in your property

• The commercial viability of your funding purpose

• A credible and clear exit strategy (such as refinancing or asset sale)

• Your ability to make interest-only repayments

• Projected business income or overall asset position

Whether you’ve experienced defaults, court judgements, a discharged bankruptcy, or ongoing arrears, you may still qualify if the property has equity and the loan makes commercial sense.

Real-World Scenario: Using a Second Mortgage with Bad Credit

Client: Construction company based in regional Queensland

Property: $1.5 million owner-occupied residential property

First Mortgage: $850,000

Credit Status: Two defaults and a payment arrangement with the ATO

Funding Requirement: $250,000 to cover payroll, supplier costs, and new contract mobilisation

After being declined by their bank, the client worked with Innovate Funding and was approved for a second mortgage with bad credit through a private lender. The loan was structured as interest-only over a 12-month term, giving the business time to stabilise operations and plan for refinancing.

Benefits of a Second Mortgage with Bad Credit for Business Owners

A second mortgage can offer business owners with credit challenges access to funding that banks won’t provide. Here are the key advantages:

1. Access to Larger Loan Amounts

Property-backed lending allows you to borrow more than typical unsecured business loans, as the loan is secured against real estate.

2. Faster Approvals

Non-bank lenders can assess and approve second mortgage loans in as little as 48 hours, making them ideal for time-sensitive funding needs.

3. Flexible Credit Criteria

Adverse credit history is not a deal-breaker. Private lenders assess the full picture, focusing on equity and exit plans rather than credit scores.

4. No Need to Refinance Your Existing Loan

You can keep your current mortgage and access additional capital through a second mortgage—avoiding the disruption and fees of refinancing.

5. Structured to Suit Your Business

Most second mortgage loans are interest-only for 6 to 24 months, which helps ease cash flow pressure while still giving you access to critical funding.

Risks to Be Aware Of

While a second mortgage with bad credit provides greater access to funding, it’s important to weigh the risks:

Higher Interest Rates

Second mortgages typically attract higher rates than standard business loans due to the increased risk for the lender. Rates usually range between 8% and 18% per annum.

Short-Term Loan Structures

These loans are usually short term, designed for bridging finance or temporary funding. A solid exit strategy is essential.

Property Is at Risk

Because the loan is secured, failure to meet repayments could lead to the property being sold to recover the debt.

Loan-to-Value Ratio (LVR) Caps

Private lenders generally limit total LVR (first and second mortgages combined) to 65%–75% for residential properties and 60%–65% for commercial properties.

What Do You Need to Apply?

To apply for a second mortgage with bad credit through Innovate Funding, you’ll typically need:

• A recent mortgage statement and council rates notice

• Identification

• Details of your business and purpose of funds

• A clear exit strategy (e.g., refinance, asset sale)

• Details of the property to be used as security

• If applying through a company or trust, business structure documentation

How Much Can You Borrow?

Loan amounts depend on several factors, including:

• The value and location of the security property

• Your existing mortgage balance

• The maximum allowable LVR

• The purpose of the loan and business viability

Example:

• Property Value: $1,000,000

• Existing First Mortgage: $600,000

• Lender Maximum Combined LVR: 75%

• Maximum Total Lending: $750,000

• Potential Second Mortgage: Up to $150,000

When Is a Second Mortgage with Bad Credit Suitable?

This type of loan may be the right solution if:

• You need fast access to working capital

• You have equity in your property

• You’ve been declined by a bank due to bad credit

• You’re facing a short-term cash flow issue

• You want to retain your current mortgage

• You have a realistic plan to repay or refinance the loan

Second mortgages are particularly useful for businesses in construction, retail, logistics, and other industries with cyclical income or large project funding needs.

Why Work With Innovate Funding?

At Innovate Funding, we specialise in structuring second mortgages for commercial clients across Australia, including those with credit impairment. We understand the challenges that come with running a business and how critical fast access to capital can be.

We work with a trusted panel of private lenders who are open to providing second mortgage funding with bad credit. Our team handles the process from start to finish, ensuring your application is structured for approval, your risk is minimised, and your funding goal is achieved.

Final Thoughts

If you’ve been turned away by a bank due to poor credit but own property with equity, a second mortgage with bad credit could be your pathway to much-needed business funding. This solution offers speed, flexibility, and a chance to regain financial control while keeping your operations running.

Let Innovate Funding help you unlock the value in your property and structure a deal that supports your business success.

Ready to talk?

Contact Innovate Funding today to explore how a second mortgage with bad credit could work for your business.