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What Is LVR and How Does It Affect Your Second Mortgage Business Loan?
- Innovate Funding
- Jun 3
- 4 min read
In Australian commercial lending, one metric dominates funding decisions: the Loan-to-Value Ratio (LVR). More than 70% of non-bank and private lenders list LVR as their primary risk filter when assessing second mortgages.
For businesses seeking to unlock equity or raise funds, particularly through non-bank lenders, understanding LVR is crucial. But many owners misunderstand how it works — particularly the difference between gross loan amounts and net funds received — and why second mortgages often offer lower interest rates compared to unsecured business loans.
In this article, we break it all down so you can confidently assess your funding options and maximise your business potential.
What Is LVR?
LVR stands for Loan-to-Value Ratio, and it’s the percentage of a loan amount compared to the total value of the secured asset, typically a commercial or investment property. The formula is simple: LVR = (Total Loan Amount ÷ Property Value) × 100
If your property is worth $1 million and your combined loans (first and second mortgages) total $750,000, your combined LVR is 75%.
In the non-bank lending world, the maximum loan-to-value ratio (LVR) for second mortgages typically caps out at 75% gross.
What does “gross” mean? It includes:
The cash you receive (net loan proceeds)
Prepaid or capitalised interest (common on short-term second mortgages)
Lender, broker, legal, and establishment fees
This is crucial: even if you only need $120,000 for business use, if the fees and prepaid interest total $25,000, the lender assesses the full $145,000 against your property’s value.
Second Mortgages vs Unsecured Business Loans: What’s the Difference?
Many businesses in Australia weigh two options when seeking additional funding:
An unsecured business loan
Here’s how they differ:
Feature | Second Mortgage | Unsecured Business Loan |
Security | Secured against property | No security required |
Lender Risk | Lower (secured by asset) | Higher (no collateral) |
Interest Rates | Typically lower (due to reduced risk) | Higher (reflecting unsecured nature) |
Loan Size | Larger amounts possible, tied to available equity | Usually smaller, based on cash flow |
Term Length | Short to medium term (often 3–12 months) | Short term (often 3–12 months) |
Approval Speed | Fast with private lenders (often 2–5 days) | Fast (same day to 3 days) |
Use of Funds | Broad — working capital, expansion, renovations | Often restricted to short-term cash needs |
Because second mortgages are backed by tangible security, lenders can offer lower interest rates and larger amounts than unsecured business loans. This makes them especially attractive for businesses that own property but want to avoid high-cost, high-risk, unsecured borrowing.
Why Second Mortgages Often Offer Lower Rates
Unsecured business loans are priced based on risk to the lender. Without any collateral, the lender relies solely on your business cash flow, turnover, and credit history. This often results in:
Higher interest rates (sometimes 18–30% per annum)
Shorter terms (to reduce lender exposure)
Smaller maximum loan sizes
In contrast, a second mortgage is secured against your property, meaning the lender has a legal claim on a valuable asset. Even though they sit behind the first mortgage, the risk profile remains significantly lower than that of unsecured lending.
This allows private and non-bank lenders to offer:
Interest rates often ranging 12–24% per annum (depending on risk)
Larger loan sizes (linked to property equity and capped at 75% gross LVR)
Flexible terms (from 6 months to 3 years, depending on purpose)
For businesses seeking to fund larger projects or stabilise their cash flow over a longer term, second mortgages offer a more affordable and scalable solution.
When Should You Consider a Second Mortgage?
A second mortgage isn’t just a last-resort tool.
Businesses across Australia use them strategically to:
Unlock equity for working capital
Fund renovations or commercial property upgrades
Purchase new inventory or equipment
Expand operations or open new locations
Consolidate short-term business debts
By leveraging the unused equity in your property — up to a maximum of 75% gross LVR — you can access critical funds without touching your first mortgage.
Let’s walk through a real-world scenario:
Property value: $1,000,000
First mortgage: $600,000
Target combined LVR: 75% → $750,000 total debt limit
Available for second mortgage = $750,000 - $600,000 = $150,000 gross
Now, let’s break that down:
Net funds you want: $130,000
Prepaid interest: $12,000
Fees (lender, legal, broker): $8,000
Gross loan amount: $130,000 + $12,000 + $8,000 = $150,000
This means for a 75% LVR 2nd mortgage you as the borrower will receive $130,000 as your net proceeds.
How Innovate Funding Helps
At Innovate Funding, we specialise in non-bank and private commercial lending solutions across Australia. Here’s how we help you navigate second mortgages and LVR limits:
Accurate LVR calculations: We ensure you know your total gross exposure, factoring in fees and prepaid interest, so you understand precisely how much you can access.
Maximised net outcomes: We negotiate the best terms to ensure the highest possible cash-in-hand from your approved LVR cap.
Tailored lender matching: We work with a panel of non-bank lenders willing to go up to 75% gross LVR — even for second mortgages, even for short-term needs.
Fast approvals: Unlike banks, our lending partners move quickly, often approving deals within 48–72 hours.
Clear exit strategies: We help you plan how to repay or refinance the second mortgage, ensuring the solution fits your long-term business goals.
Final Thoughts
Understanding LVR — especially how gross loan amounts shape your borrowing capacity — is crucial when considering a second mortgage business loan.
While the 75% gross LVR cap sets the maximum exposure, Innovate Funding works hard to maximise the net cash you receive by structuring the deal smartly.
Second mortgages offer significant advantages over unsecured business loans, including lower interest rates, larger loan sizes, and access to untapped property equity — all without disturbing your primary mortgage.
If your business is ready to unlock new funding opportunities, explore tailored second mortgage solutions with Innovate Funding. We’re here to guide you through the process, connect you with the right lenders, and help you achieve your business goals with confidence.
