Can the Owner's or Shareholder's Private Property Secure a Business Loan?

A Polish limited liability company (sp. z o.o.) needs PLN 500,000 to deliver a new contract. The company does not own any real estate, but one of its shareholders owns an apartment worth PLN 1.2 million. Can that apartment secure a loan taken out by the company?

What about a sole trader who owns a private house but wants to use the financing exclusively for business purposes?

In certain circumstances, privately owned property can be used to secure a business-related obligation. However, this does not mean that every financing product accepts such collateral or that the property owner faces no risk.

The key is to distinguish three roles: the entity borrowing the money, the owner of the property and the person or entity legally liable for repaying the obligation.

These relationships differ between a Polish sole proprietorship (jednoosobowa działalność gospodarcza, or JDG) and a limited liability company (spółka z ograniczoną odpowiedzialnością, or sp. z o.o.). The situation is different again when the property belongs to a shareholder, spouse or someone with no direct involvement in the business.

We explain when this type of collateral may be considered, what risks the property owner assumes and what should be checked before signing any documents.

Can privately owned property secure a company's debt?

Yes. Under Article 65 of the Polish Land and Mortgage Registers and Mortgage Act, a mortgage can secure a specified claim over real estate, allowing the creditor to seek satisfaction from that property in accordance with the law.

The legislation does not require the property owner to be the same person or entity that incurred the secured obligation.

In practice, a mortgage can therefore secure another person's or company's debt. This arrangement is often referred to as a third-party mortgage, where the property owner provides mortgage security for someone else's obligation.

However, this does not mean that someone can simply list their privately owned apartment on a company's loan application and consider the arrangement complete.

The financing provider must accept the proposed structure, and the property owner must knowingly agree to establish the security.

It is also necessary to determine whether the property belongs exclusively to that person, is jointly owned or forms part of the spouses' joint matrimonial property.

Establishing a contractual mortgage requires the appropriate legal formalities. As a general rule, the property owner's declaration establishing the mortgage must be made in the form of a notarial deed, although specific legislation provides certain exceptions. Under Article 67 of the Polish Land and Mortgage Registers and Mortgage Act, a mortgage also requires an entry in the land and mortgage register to come into existence.

Sole proprietorship vs limited liability company - why does the legal form matter?

When private property is offered as collateral, it is essential to establish who is legally borrowing the money.

A sole trader and a shareholder in a limited liability company may play similar roles in running a business, but their legal positions are different.

Sole proprietorship - property owned by the entrepreneur

In Poland, a sole trader operates as an individual. A sole proprietorship does not create a separate legal entity that owns business assets independently of the entrepreneur.

This means that a house, apartment or commercial unit belonging to the entrepreneur may potentially secure a business loan, even if the property has not been recorded as a fixed asset of the business.

However, this does not mean that the financing provider will automatically accept the property.

A lender may impose specific requirements concerning the property's type, intended use, ownership, existing encumbrances or documentation.

It is also important to remember that a sole trader is generally personally liable for obligations arising from their business activities.

Establishing a mortgage over privately owned property therefore creates a specific additional security interest. It is not necessarily the only basis on which the entrepreneur may be liable for business debts.

Limited liability company (sp. z o.o.) - property owned by a shareholder

A limited liability company operates differently.

A sp. z o.o. is a separate legal entity with its own assets. As a general rule, the company itself is liable for the obligations it incurs.

Under Article 151 § 4 of the Polish Commercial Companies Code, shareholders are not liable for the company's obligations solely because they hold shares.

However, this does not prevent a shareholder from voluntarily offering their own property as collateral for financing taken out by the company.

For example, a company may obtain a business loan while a shareholder establishes a mortgage over their privately owned property, provided that the proposed arrangement is legally permissible and accepted by the financing provider.

Establishing a mortgage does not, by itself, make the property owner the borrower. However, it exposes their property to enforcement if the secured debt is not repaid.

It is also important to check whether the financing provider requires a guarantee, promissory note or another document in addition to the mortgage.

Such additional obligations can significantly change the liability of the person providing the property as security.

Is a management board member in the same position as a shareholder?

Not necessarily.

Being a shareholder and serving as a member of the management board are two distinct legal roles.

Under certain circumstances, a management board member may incur liability under the Polish Commercial Companies Code, regardless of whether they have offered their property as collateral.

Therefore, identifying someone as a shareholder is not enough to assess their potential exposure. It is also necessary to determine whether they represent the company, serve on its management board and sign any documents in their own name.

Who is liable for a loan secured by privately owned property?

This is one of the most important questions for anyone considering offering their property as collateral.

It is essential to distinguish personal liability for the debt from liability limited to the mortgaged property.

Personal liability concerns the person or entity legally obliged to repay the debt, such as a company that has taken out a loan.

Mortgage-based liability, by contrast, relates to the specific property over which the security has been established.

A third-party property owner may not be personally liable for the loan, but the mortgage creditor may still seek satisfaction from the mortgaged property if the secured obligation is not repaid.

Example - a shareholder secures a company's loan

A Polish limited liability company obtains a business loan of PLN 400,000. One of its shareholders offers a privately owned apartment as mortgage collateral.

The company remains the borrower and must repay the loan in accordance with the agreement.

The shareholder signs the documents required to establish a mortgage over their property.

If the company fails to repay the loan, the creditor may seek satisfaction from the mortgaged apartment through the legally applicable procedures.

However, establishing the mortgage alone does not automatically make the shareholder personally liable for the entire debt with all their other assets.

The scope of liability depends on whether the shareholder has only established the mortgage or has also assumed other obligations, such as providing a personal guarantee.

The table illustrates the basic distinction. In practice, one person may occupy several roles at the same time.

For example, a shareholder who establishes a mortgage and also personally guarantees repayment may have broader liability than someone who only provides mortgage collateral.

Is a spouse's consent required to establish a mortgage?

This depends primarily on who owns the property and which matrimonial property regime applies.

If the property forms part of the spouses' joint matrimonial property, establishing a mortgage generally requires the other spouse's consent.

This follows from Article 37 § 1 of the Polish Family and Guardianship Code, which covers transactions involving the encumbrance of real estate.

If the required consent has not been given, the legal consequences depend on factors including the type of transaction and whether it can subsequently be confirmed. The consent requirement should therefore not be treated as a minor administrative formality that can always be corrected without consequences.

What if the property belongs to one spouse's separate property?

The situation may be different where the property forms part of one spouse's separate estate.

For example, the property may have been acquired before marriage or inherited without becoming part of the spouses' joint property.

In that case, consent under the rules governing joint matrimonial property is generally not required to establish a mortgage over the separately owned property.

However, ownership cannot always be established solely on the basis of the owner's declaration.

The financing provider may require documents confirming how the property was acquired and its legal status. In certain circumstances, documents relating to the spouses' matrimonial property regime may also be relevant.

What if the spouses have a separation of property regime?

Where spouses have separate property, it is necessary to establish which spouse owns the property or whether they are both co-owners.

A separation of property regime does not automatically allow one spouse to establish a mortgage over the entire property if both spouses hold ownership shares.

Before applying for financing, it is therefore worth checking the land and mortgage register and the documents confirming ownership.

What if the property has several co-owners?

In the case of co-ownership in fractional shares, it is important to distinguish between establishing a mortgage over the entire property and mortgaging an individual co-owner's share.

Article 65(3) of the Polish Land and Mortgage Registers and Mortgage Act allows a mortgage to be established over a fractional ownership share. Establishing a mortgage over the entire property, however, requires the rights of all co-owners to be taken into account.

This does not mean that a financing provider must accept an individual ownership share as collateral. It may require a mortgage over the entire property or a different transaction structure.

Can a company's loan be secured by property belonging to a parent or another person?

In certain circumstances, yes. A person establishing a mortgage to secure someone else's debt does not have to be a shareholder or management board member of the company.

They may be a family member of the entrepreneur or another property owner who agrees to offer their asset as collateral for a specific obligation.

A family relationship alone does not create an obligation to repay a company's debt. Liability arising from a mortgage is established under the applicable legal rules and documents.

For the financing provider, the key questions concern ownership, whether valid mortgage security can be established and whether the proposed arrangement is accepted under the relevant financing product.

For the property owner, the main issue is understanding that their own asset is at risk, even if they do not run the business and receive none of the loan proceeds.

Can the property owner withdraw the collateral?

The property owner should not assume that they can unilaterally withdraw the mortgage security whenever they wish.

A mortgage is linked to the secured claim, and its expiry or removal requires the relevant legal conditions to be satisfied.

If the owner later wants to sell the property, replace the collateral with another asset or have the mortgage released, cooperation with the creditor and appropriate legal arrangements may be necessary.

It is therefore worth discussing the conditions for releasing the security before the mortgage is established.

What risks does someone face when offering private property as collateral?

The risks are not limited to whether the company makes its loan repayments on time.

The property owner should also understand the legal and financial consequences of establishing a mortgage.

Four issues are particularly important.

1. Risk of enforcement against the property

If the borrower fails to repay the secured obligation, the mortgage creditor may seek satisfaction from the property under the applicable legal procedures.

This may result in the loss of the property through enforcement, even if its owner never received any of the loan proceeds.

This is the fundamental risk that anyone offering privately owned property as collateral should understand.

2. Restrictions affecting a sale or further financing

A mortgaged property can be sold, but the existing security affects how the transaction is structured and what a potential buyer may require.

The mortgage may also affect the availability of further financing secured by the same property.

3. Scope of the secured claim

It is important to check not only the principal amount of the loan but also the registered mortgage amount, the scope of the secured claims and the repayment terms.

The registered mortgage amount is not always identical to the amount of financing disbursed.

The owner should understand which obligation is secured and the maximum registered amount of the mortgage.

4. Additional personal liability

This is one of the most important aspects of reviewing the documents.

A property owner who signs only the documents establishing a mortgage may be in a different legal position from someone who also provides a guarantee or assumes another personal obligation.

Therefore, not every document should be treated as a formality related solely to establishing the mortgage.

If the financing provider requires several forms of security, the consequences of each should be assessed separately.

What should you check before establishing a mortgage over private property?

For both the business and the property owner, the most sensible starting point is to clarify each party's role and prepare the relevant documents before committing to the mortgage.

Not every transaction requires exactly the same set of documents. Using property owned by a sole trader differs from using joint matrimonial property or an asset belonging to a third party.

For more information about documentation for property-secured financing, read Which Documents Should You Prepare for a Property-Secured Business Loan?.

Is the value of the private property enough to obtain a loan?

Not always.

Even if the property owner is willing to establish a mortgage, the financing provider must assess whether the property is suitable as collateral.

Relevant factors may include its type, location, market value, existing encumbrances and whether a valid and enforceable mortgage can be established.

However, the financing decision cannot be based on property value alone.

A high value of privately owned property does not replace an assessment of the company's ability to repay its obligations.

For example, a company may offer collateral worth PLN 2 million while having irregular revenues and insufficient cash flow to service another loan.

In that situation, the main problem may not be the quality of the collateral but the actual risk associated with the financing.

To learn more about property assessments, read Property Valuation for Business Loans in Poland - AVM, Appraisal Reports and Inspections.

Does PaveNow accept privately owned property as collateral?

PaveNow offers property-secured financing for businesses. However, whether a particular asset can be accepted depends on the product requirements and the outcome of the assessment.

PaveNow's public property-secured loan materials primarily describe properties owned by businesses. This is not sufficient grounds to assume that privately owned property belonging to a shareholder, management board member or another third party will automatically be accepted as collateral.

In practice, two questions should be considered separately.

Does Polish law allow a private property to secure a company's debt?

Yes, in certain circumstances.

Will PaveNow accept this type of security in a particular case?

This must be confirmed under the requirements of the relevant financing product.

What should you prepare for an initial discussion?

Useful information includes basic company details, the proposed loan amount and purpose, the property's land and mortgage register number and confirmation of who owns the property.

If the property belongs to a shareholder or another person, this should be made clear from the outset.

It is also important to establish whether the property is already encumbered, is jointly owned or forms part of joint matrimonial property.

These details can help determine whether the proposed financing structure may be considered under the relevant product.

Further information is available on the PaveNow property-secured business loan page.

Summary - private property can secure a company's debt, but the decision requires careful consideration

Privately owned property belonging to an entrepreneur, shareholder or third party may, in certain circumstances, secure a business obligation.

However, the legal possibility of establishing a mortgage should not be confused with the availability of a particular financing product.

The most important questions are who is taking out the loan, who owns the property and what liability the person offering the collateral is assuming.

In a sole proprietorship, the entrepreneur is generally personally liable for business obligations. In a limited liability company, the company may be the borrower, while a shareholder establishing a mortgage over their property may bear mortgage-based liability for the company's debt.

If the property forms part of joint matrimonial property, the requirements concerning the other spouse's consent must also be considered.

Before making a decision, it is worth assessing not only the financing amount and property value but also the consequences for the person whose private assets will serve as collateral.