Consolidating business debt when it sits in two companies, or a company and a trust

Debts spread across two companies, or a company and a trust, can usually be consolidated into one facility. One entity becomes the borrower, and the related entities typically join as guarantors or provide security. The lender assesses the whole group, but it needs every entity’s numbers and every director’s or trustee’s signature to do it properly.

Many Australian businesses end up with more than one entity without ever really planning it. An operating company runs the trade. A family trust owns the yard or the shopfront. A second company was set up for a new venture or a separate contract. Over time, each picks up its own debts: a short-term loan here, an equipment facility there, an ATO balance in a third place. When it’s time for a business debt refinance, the first question isn’t how much to borrow. It’s who borrows.

Why does it matter which entity the debt sits in?

Because each entity is its own legal person. As business.gov.au puts it, a company is “a legal entity that’s separate from you”. The same is true between two companies you own: Company A’s debts are not Company B’s, even if you run both from the same desk.

That separation shapes everything in a group consolidation:

• A lender can only lend to one borrower (or co-borrowers), and that borrower is legally responsible for the loan.
• Other entities only become liable if they sign up, usually by guaranteeing the loan or putting up security.
• Money moving between entities has to be recorded, typically as a loan between related parties, so your accounts and tax returns stay accurate. That’s a conversation for your accountant before settlement, not after.

Who should be the borrower?

There’s no single answer, but lenders tend to follow the cash. The borrower is usually the entity whose trading income will make the repayments. The table shows common group shapes and how they’re typically handled.

Group shape	Usual borrower	How the other entity joins
Operating company plus a trust that owns the premises	Operating company	Trust (through its trustee) guarantees and gives a mortgage over the premises
Two trading companies with shared directors	The stronger trading company	Second company guarantees; its debts are paid out at settlement
Sole trader history plus a newer company	The company	Owner guarantees personally; old personal-name business debts may be paid out
Trading trust with a corporate trustee	The trustee, as trustee of the trust	Directors of the trustee company usually guarantee
Company plus personally owned home used as security	Company	Home owners guarantee and give a mortgage

When property security sits in a different entity from the trade, property-secured lending is often the practical route. Our secured business loans page explains how that security works, and loans of this kind run from $20k to $5m.

Who has to sign, and what does the lender check?

Every entity that borrows, guarantees or gives security must sign, and the lender will check each one has the authority to do so.

For companies, the lender checks the ASIC company extract to see who the current directors and shareholders are. ASIC’s company officeholders guidance notes that a proprietary company must have at least one director, and that directors must have a director ID before they’re appointed. Lenders typically want documents signed by two directors, or by a director and the company secretary, or by the sole director where there’s only one. If a director has left or a new one has joined, update ASIC before you apply so the extract matches reality.

For trusts, the trust acts through its trustee. The lender will ask for the trust deed and any variations to confirm the trustee can borrow, guarantee or mortgage trust assets, and to check who the beneficiaries and appointor are. If the trustee is a company, its directors sign on its behalf.

For security over business assets, lenders often register their interest on the Personal Property Securities Register. In a group, there may be registrations against more than one entity, and old ones should be cleared once the debts they secured are paid out.

Gathering all of that takes time, so it helps to start early. If your group is already mapped out, start your enquiry now and tell us which entity holds what.

How do lenders assess a group’s cash flow?

They look at the group as one economic unit, but they build that picture from each entity’s records. Expect to supply:

• Financial statements and tax returns for each entity that borrows, guarantees or gives security.
• Business bank statements for each trading account, so the lender can see real deposits and repayments.
• An ATO position for each entity, because tax debts in a guarantor entity still affect the group’s capacity.
• A list of intercompany loans, showing which entity owes which and why.
• A simple group chart showing who owns and controls each entity.

The most common delay isn’t bad numbers. It’s missing ones: a dormant company with unlodged returns, a trust nobody’s done accounts for, or an intercompany loan that doesn’t match between the two sets of books. Clearing those up first can save weeks.

Illustrative example: a café group with two companies and a trust

This is an illustrative example, not a real client. A couple own two cafés, each run through its own company. A family trust owns the freehold of the first café. The second café’s company has a short-term loan with daily debits and about $40k of ATO debt; the first café’s company has an equipment loan and a supplier account in arrears.

Their accountant draws a group chart and confirms the first café company produces most of the profit. A lender proposes that company as borrower, with the second café’s company and the trust (through its trustee) guaranteeing, and the trust giving a mortgage over the freehold. The new facility pays out the short-term loan, the ATO balance and the supplier arrears. The equipment loan, which is running well, stays in place. Both directors sign for each company, the trustee signs for the trust, and the accountant records the intercompany loan so both sets of books agree. Our page on business loans for cafés covers how lenders look at hospitality more generally.

What should you sort out before applying?

A short checklist that makes group consolidations far smoother:

1. Draw the group. Every entity, who owns it, who controls it, and what it owns.
2. List every debt by entity. Lender, balance, repayment, security, and which entity owes it.
3. Decide the borrower with your accountant, based on where the repayments will come from.
4. Update ASIC records so directors, shareholders and addresses are current.
5. Find the trust deed and every variation, signed and complete.
6. Bring lodgements up to date for every entity, including any that are quiet or dormant.
7. Agree on signers. Make sure every director and trustee is available and willing.

If one entity has been quiet for years, don’t assume it can be ignored. A dormant company with an old loan or an unlodged return still appears in searches, and lenders would much rather hear about it from you than find it themselves. A short note explaining what each entity does, and why it exists, answers most of the questions before they’re asked. Our commercial property loans page is worth a read if the group’s property sits in its own entity.

Juggling debts across a group? Let’s work out the right borrower

Multi-entity groups are where a careful look pays off. Pick the right borrower, line up the right guarantors, and one well-built facility can replace a scatter of debts across the whole structure.

Starting is quick, around 60 seconds, and there’s no credit check when you first enquire. Your details aren’t sprayed around a pile of lenders, so you won’t be chased by people you’ve never heard of. A real person looks at how your group fits together and calls you to talk it through. Please complete the form accurately, including which entity holds which debt, so we can point you to the right option the first time. Our how it works page shows what happens after you enquire.

Find out if your group qualifies →