Commercial Investment Property Loans

Unlike a residential investment loan, commercial lenders can place much greater weight on the property, tenant, lease and net rental income when deciding how much they are willing to lend.

The same property can also produce different outcomes with different lenders. Property type, location, deposit, lease, rental income, borrowing structure and the lender’s servicing method can all affect the maximum loan amount, LVR, rate and loan terms.

At Home Loan Experts, our commercial brokers focus on which lender’s credit policy actually fits the transaction, rather than simply starting with the lender advertising the lowest rate or highest LVR.

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How do commercial investment property loans work?

A commercial investment property loan lets you borrow money to purchase commercial real estate that will usually be leased to another business. The lender takes a mortgage over the property, you contribute cash or equity, and the property’s rental income and/or your other income can be used to demonstrate that the debt can be serviced.

The biggest difference from a typical home loan is that the property’s ability to produce income is often a major factor in whether the lender approves the loan.

Here’s a step-by-step breakdown of how commercial investment property loans work:

• You choose the commercial property.

  The lender considers the property type, location, zoning, whether it is already leased and how specialised the property is.

• The lender determines an acceptable LVR.

  There is no single commercial-property LVR that applies to every transaction. The maximum can change depending on the property, lender and overall deal.

• The lender assesses whether the proposed debt can be serviced.

  Some lenders assess your broader personal or business income. Others may offer Lease Doc or ICR-style lending where greater emphasis is placed on the property’s rental income.

• The tenant and lease are assessed.

  The lender may consider the rent, tenant, remaining lease term, property outgoings and the likelihood of the property being re-leased.

• A commercial valuation is completed.

  The lender usually relies on its own accepted valuation rather than simply the agreed purchase price.

• If approved, the lender funds its portion of the purchase.

  You contribute the remaining purchase price plus applicable costs, such as stamp duty, legal expenses and lender or valuation fees.

What we look at first

When our commercial brokers assess an investment-property scenario, some of the first questions are:

• What is the property worth?
• What type of commercial property is it?
• Who is the tenant?
• What is the net rent?
• How long is left on the lease?
• How much deposit or equity is available?
• How much does the investor want to borrow?

These questions help establish which lending pathways are realistic before an application is made.

Make Sure Your Commercial Property Deal Stacks Up

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How Much Can I Borrow For A Commercial Investment Property?

Most lenders will let you borrow up to 70% of the property value, but there are some lenders who can go even higher.

Your maximum commercial investment property loan may be restricted by:

• The lender’s maximum LVR: how much the lender is prepared to advance against the property.
• The property’s servicing capacity: how much debt the property’s rental income can support.
• Your broader borrowing capacity: where the lender also assesses your personal or business income and existing commitments.

Whichever produces the lower acceptable loan amount can become the practical borrowing limit.

Example

Suppose you are buying a commercial investment property for $2 million.

If the lender is prepared to accept a 70% LVR:

$2,000,000 × 70% = $1,400,000

That gives you a theoretical LVR limit of $1.4 million.

However, if the lender’s assessment of the property’s net rental income supports only $1.25 million of debt, the practical maximum may be closer to $1.25 million, subject to the lender’s other requirements.

That would produce an effective LVR of:

$1,250,000 ÷ $2,000,000 = 62.5%

This is why our commercial brokers do not calculate borrowing capacity from the headline LVR alone.

For a tenanted investment property, the assessment may work more like:

Net rent → servicing/ICR assessment → possible loan amount → LVR check

rather than simply:

Property value × maximum LVR = borrowing capacity

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How much deposit do I need for a commercial investment property?

As a planning guide, having around a 30% deposit plus purchase costs can be a useful starting point for a commercial investment property, although the amount you actually need can be substantially higher or lower depending on the property and lender.

The important distinction with commercial investment property is that the lender’s maximum LVR does not automatically determine your loan amount.

For example, if you buy a $1 million property and the lender is comfortable with a 70% maximum LVR, you might initially expect a $700,000 loan.

But if the property’s net rent only supports $550,000 under the lender’s servicing assessment, you may need to contribute $450,000 rather than $300,000.

You also need to allow separately for purchase costs, which can include:

• Stamp duty
• Legal and conveyancing costs
• Valuation fees
• Lender fees
• Other transaction costs

The lender’s valuation can also increase the amount of cash you need if the accepted valuation is below your purchase price.

This is why, with commercial investment property, we often work backwards from:

Net rent → lender’s servicing/ICR requirement → possible loan amount → resulting LVR

rather than assuming:

Property value × maximum LVR = loan amount.

That distinction is especially important for investors moving from residential into commercial property.

Our brokers found that first-time commercial investors often focus on the advertised LVR or the property’s headline rental return, when the quality of the lease and how a particular lender treats that income can determine whether the deal works.

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What Are Commercial Investment Property Loan Rates?

At Home Loan Experts, our commercial investment property loans rates start from 6.29% | 6.89% (comparison rate) three years fixed for eligible commercial loans secured by residential property.

Variable rates for eligible loans secured by commercial property start from 6.64% | 7.24% (comparison rate)

Commercial investment property loan rates can vary considerably between borrowers, properties and lenders.

The rate offered can be influenced by factors such as:

• Loan amount
• LVR
• Property type
• Property location
• Tenant and lease
• Servicing method
• Borrower strength
• Loan term
• Interest-only requirements
• Whether the lender considers the security standard or specialised

This means the lowest advertised commercial rate is not necessarily the rate available for your transaction.

Our brokers generally establish which lenders can finance the property and required loan amount first, then compare the pricing between those viable options.

For current pricing information, see our commercial loan interest rates page.

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How is rental income assessed for a commercial investment property loan?

For a commercial investment property loan, lenders can assess whether the property’s rental income is sufficient to support the proposed commercial debt.

One common method is the Interest Coverage Ratio (ICR).

The basic calculation is:

ICR = Lender-assessed rental income ÷ assessed interest expense

For example, suppose:

• Lender-assessed net rent = $120,000 a year
• Assessed annual interest expense = $80,000

The calculation is:

$120,000 ÷ $80,000 = 1.50x ICR

An ICR of 1.50x means the lender accepts $1.50 of rental income for every $1 of assessed interest expense. In this example, the accepted rental income is 50% higher than the assessed interest expense.

However, lenders do not necessarily look at the rent in isolation.

They can also consider:

• Net rent after relevant property outgoings
• Who the tenant is
• Remaining lease term
• Whether the lease is arm’s length
• Rental increases
• Who pays the outgoings
• Property type and marketability
• The lender’s own servicing requirements

Senior Mortgage Broker Jonathan Preston highlights the importance of assessing commercial Lease Doc scenarios using the actual net rental income, rather than assuming the advertised LVR will be achievable.

That is important because two lenders can assess the same property and lease and still arrive at different maximum loan amounts.

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What Types Of Properties Can You Buy With A Commercial Investment Property Loan?

Commercial investment property loans can be used to finance a wide range of non-residential properties that you intend to lease or hold as an investment.

Common examples include:

• Office buildings and strata offices
• Warehouses and industrial units
• Factories and workshops
• Retail shops
• Medical and allied-health premises
• Showrooms
• Mixed-use commercial properties, subject to lender policy

The property being classified as commercial does not automatically mean every commercial lender will accept it.

Lenders also consider how easily the property could be sold or leased to another business if something went wrong.

For example, a standard warehouse in an established industrial area may attract more lender options than a highly specialised property designed for one particular type of business.

The property itself can therefore affect:

• Lender choice
• Maximum LVR
• Deposit required
• Interest rate
• Valuation
• Loan terms

Highly specialised properties may still be financeable, but lender choice can become much more important.

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What Are The Requirements For A Commercial Investment Property Loan?

Commercial investment property loan requirements vary by lender, but you will generally need an acceptable commercial property, sufficient deposit or equity, enough income to service the debt and evidence supporting the property and lease.

Typical requirements include:

• Deposit or equity: Commercial investors often plan around a larger contribution than residential borrowers. The exact amount depends on the lender, property type, valuation and how much debt the property can support.
• Acceptable commercial security: The lender will assess the property type, location, zoning, marketability and whether it is highly specialised.
• Sufficient servicing: Depending on the loan, the lender may assess your personal or business income, the property’s rental income, or both.
• Tenant and lease details: For a leased property, lenders may want to see the current lease, rent, tenant, remaining lease term and responsibility for outgoings.
• Commercial valuation: The lender will normally require a valuation and base its lending decision on the value it accepts.
• Suitable borrowing structure: The borrower may be an individual, company or trust, depending on the lender and transaction.
• Supporting documents: These can include the contract of sale, lease, identification, evidence of deposit/equity, financial statements, tax returns and details of existing debts, depending on the servicing method.

For Lease Doc lending, the documentation can be quite different because greater emphasis may be placed on the commercial property’s lease and rental income rather than full personal or business financials.

Our commercial brokers generally qualify an investment enquiry by asking for the property value, current lease and remaining term, property type and available deposit or equity before going deeply into product selection.

That is because commercial loan requirements are not just borrower requirements. The property itself has to qualify as well.

A financially strong investor can still have limited lender options if the security is highly specialised, vacant, has a weak lease or requires an LVR outside the lender’s appetite.

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How to get approved for a commercial property investment loan?

Getting approved for a commercial investment property loan is less about ticking one standard eligibility checklist and more about making sure the property, lease, rental income, deposit and lender all fit together.

Our mortgage broker, Ajar Rajbhandari, describes commercial lending well: “the whole plan has to make sense.” A lender can be comfortable with you as a borrower but still decline the property, or like the property but decide the rent does not support the amount you want to borrow.

The strongest applications tend to be those where the property is already identified, the lease is understood, the investor has sufficient equity, and the proposed loan works under the chosen lender’s servicing rules. Insights from our brokers also highlight that long-term tenancies and adequate equity can materially strengthen an investment scenario, while unusual security, high LVRs or weak tenant profiles can narrow lender appetite.

There is no formula that guarantees approval, but at Home Loan Experts, we generally want to see the following before recommending a lender:

• Deposit/Equity: Around 30% or more plus costs gives us a useful starting point for many investment scenarios, although the actual requirement can be higher or lower.
• Property: A standard, readily marketable office, warehouse, retail or similar commercial property is generally easier to place than highly specialised security.
• Occupancy: A property with an existing tenant and executed lease generally provides more finance options than a vacant property.
• Lease: A longer remaining lease to an established tenant gives the lender more certainty around future rental income.
• Net rent: The rent needs to support the proposed debt under the lender’s ICR or other servicing test.
• LVR: The requested loan needs to fit both the lender’s property LVR and its servicing calculation.
• Structure: The individual, company or trust borrowing the funds needs to fit the chosen lender’s policy.

These are our assessment signals, not universal lender approval requirements. Commercial policy can differ substantially between lenders.

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Why was my commercial investment property loan declined?

A commercial investment property loan can be declined even if you have a strong income and substantial deposit because the lender assesses the entire transaction, not just the borrower.

Some of the common reasons why a commercial investment property loan was declined are:

• The property falls outside the lender’s security appetite
• The requested LVR is too high
• Net rental income does not support enough debt
• The tenant or lease does not meet requirements
• The commercial valuation is lower than expected
• Personal or business servicing does not work
• The borrowing structure does not fit the lender’s policy

A Decline Does Not Mean The Commercial Loan Is Unfinancable

A decline from a lender can sometimes mean that that deal does not fit one lender’s policy. It does not mean no lender will finance the property.

For example, one lender may be uncomfortable with the property type, while another specialises in it. Another lender may calculate the rental income differently or allow a different LVR.

At Home Loan Experts, our commercial investment property strategy is build around credit-policy expertise, lender choice, servicing treatment and structuring for borrowers whose scenarios need more than just a standard application.

If you’re looking for a second chance after your commercial investment property loan was declined, we will start with understanding what stopped this deal from working, then determine if the solution can be a combination of:

• Identifying another lender whose security policy better fits the property
• Investigating a specialist or non-bank lender where appropriate
• Assessing whether another lender treats the rental income differently
• Considering whether Lease Doc or another servicing method is available
• Reducing the proposed loan amount
• Contributing additional equity
• Reviewing a valuation for factual errors
• Addressing weaknesses in the lease where commercially practical

The objective is not simply to lodge another application. It is to identify what failed and determine whether that part of the transaction can legitimately be solved.

How to compare commercial investment property loans

To compare commercial investment property loans, compare the loan each lender can realistically provide for your property, not just its advertised rate or maximum LVR.

Commercial lenders can assess the same investment property differently. Property type, postcode, tenant, lease, net rent, borrowing structure and servicing method can all change the outcome.

Insights from our brokers consistently point to the same principle: the property, lease, servicing and borrower structure need to work together; an advertised maximum LVR or rate does not tell you what will actually be available for a particular deal.

When comparing commercial investment property loans, consider:

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The right lender can depend on your property, tenant, lease, rental income and structure. We’ll help you work out which options genuinely fit your investment.

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