When the bank asks for more security

Why is the bank asking now?

A request for more security usually follows a change in how the bank sees the risk. The common triggers:

• Revaluation. A new valuation of existing security came in lower, pushing the loan-to-value ratio past the bank’s comfort level.
• Weaker results. Year-end accounts or management accounts show lower earnings or a stretched balance sheet.
• Covenant pressure. A missed or marginal test — see covenant breach options.
• Higher borrowing. A limit increase or new facility request.
• Policy change. The bank has changed its security requirements for your sector or loan size.

Ask which of these applies and which clause of your facility the bank is relying on. The answer determines what you can negotiate.

What can you negotiate?

A security request is an opening position, not a final one. Options to explore:

Alternative	How it addresses the bank’s concern
Partial debt reduction	Restores LVR or gearing without new security
Different asset	An investment property or business premises instead of the family home
Limited guarantee	Caps personal exposure to a set amount
Specific rather than all-monies security	Limits the mortgage to named facilities
Tighter reporting	Monthly management accounts in place of more security
Time-limited arrangement	Extra security released once a test is met again
Partial refinance	Moves part of the debt elsewhere so the bank’s exposure falls

Bring a proposal, not just a refusal. Banks respond better to “here’s how we’ll address your concern” than to “no”.

Protecting the family home

The family home is the security many owners are most reluctant to offer — rightly. Before agreeing:

• Get independent legal advice, especially for any co-owner not involved in the business.
• Check whether the mortgage is all-monies. An all-monies mortgage may secure far more than the facility in front of you.
• Ask for a limited guarantee where a guarantee is also requested.
• Understand the release conditions. When, and on what basis, would the bank release the security?

If you’d rather keep the home out of the business debt entirely, a refinance using other property may be possible. Ask a specialist about alternatives — enquiring doesn’t involve a credit check.

When refinancing makes more sense

Sometimes the bank’s request is a sign the relationship has shifted for good. If the bank wants security that’s disproportionate to the debt, or the request comes with repricing and tighter covenants, compare the alternatives:

• Refinance the problem facility to a property-backed lender, leaving the bank with a smaller exposure it’s comfortable with.
• Add a second-ranking facility over equity elsewhere to reduce the bank’s debt.
• Refinance the whole relationship. See refinancing business debt.

Property-secured facilities run from $20,000 to $5,000,000 against residential or commercial property.

Illustrative negotiation

Illustrative only; no real business or people. After a revaluation of a company’s warehouse, a bank asks the two directors to add their homes as security for the business’s facilities. The directors counter-propose: a partial debt reduction funded by a property-backed facility over one director’s investment property, a guarantee limited to a fixed amount, and quarterly management accounts. The bank accepts the debt reduction and reporting in place of the home mortgages. The directors’ homes stay out of the business debt.

Protections to be aware of

For businesses within its scope, the 2025 Banking Code of Practice (effective 28 February 2025) sets standards for how banks deal with small business customers and guarantors. ASIC’s unfair contract terms guidance also applies to many small business contracts — broadly, businesses with fewer than 100 employees or turnover under $10 million, and for financial products an upfront price of up to $5 million. Ask your lawyer how these apply to your documents.

What should you ask the bank before responding?

A security request usually arrives as a letter or a call from the relationship manager, and it’s tempting to answer straight away. A few questions, asked in writing, give you a much clearer basis for deciding:

• Which facility and clause? Is this a condition of renewal, a right under the existing agreement, or a request the bank hopes you’ll agree to?
• What specifically changed? A valuation, a covenant result, a grading change or a policy review. Ask for the valuation if one was ordered.
• What would satisfy the concern? A target loan-to-value, a debt reduction amount, or a specific asset. Banks sometimes have more flexibility than the first request suggests.
• What is the timetable? Whether the bank needs an answer by a review date, and what happens if you propose an alternative.
• What would release the security later? If you do agree, get the release conditions documented at the same time.

The answers tell you whether you’re negotiating over a number or over the relationship. If it’s the number, a partial debt reduction or a different asset will often close the gap. If it’s the relationship — the bank is reducing exposure to your sector or your loan size — then extra security may only buy time, and a planned refinance is the more durable answer.

Keep a written record of each exchange. If you later refinance, the incoming lender will want to understand what the bank asked for and why, and a clear paper trail makes that explanation straightforward.

Facing a security request?

Before you sign anything over the family home, it’s worth knowing the alternatives. Tell us what the bank has asked for, the facilities involved and the assets available.

Enquiring doesn’t touch your credit file. Your situation stays with one specialist rather than being spread across multiple lenders. Please be accurate on the form about the properties, existing mortgages and who owns what — it’s the detail that shows whether a refinance can avoid the extra security. Explore alternatives to extra security.