Commercial Property Loans

You can use a commercial property loan to buy, refinance, or access equity in property for business and/or investment purposes. These properties can include offices, warehouses, retail premises, factories, medical suites, and other commercial real estate.

Commercial property loans are different from a standard home loan in the sense that lenders look closely at the property, what you intend to use it for, your financial position, and the financial strength of your business (behind the loan).

The approval, therefore, can vary widely between lenders. A commercial property loan that falls outside one lender’s policy may fit another lender because acceptable LVRs, property types, servicing methods and loan structures differ.

At Home Loan Experts, we help business owners and commercial property investors compare suitable lenders and structure their finance before applying. Since we have a panel of 50+ lenders, we can help you find the suitable lender for your commercial property loan.

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What Is A Commercial Property Loan?

A commercial property loan is finance secured against commercial real estate. You might use it to purchase premises for your own business or acquire a property that will be leased to tenants. Commercial property loans are also used for refinancing, equity release and some commercial property developments.

Common security types include Offices, Factories, Retail shops, Warehouses, Industrial units, Service stations, Childcare centres, Mixed-use properties, Medical and consulting rooms, Commercial investment properties, and Restaurants and hospitality premises

The property type matters because lenders don’t treat every commercial asset equally. A standard warehouse with broad resale demand presents a different lending risk from a specialised property designed for a narrow business use.

The lender will consider how easily the property could be sold or leased if circumstances changed. This is why the property itself needs to be assessed alongside your income and deposit.

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How Do Commercial Property Loans Work?

A commercial property loan works by using commercial real estate as security for the debt.

The lender assesses several parts of the transaction:

• The borrower, including your income, assets, liabilities and credit position.

• The business, where business income is required to service the debt

• The property, including its location, condition and marketability.

• The lease, where rental income forms part of the servicing assessment.

• The loan structure, including the LVR, term and repayment type.

The weighting given to each factor depends on the type of commercial mortgage.

For an owner-occupied business property, the lender is likely to focus heavily on the business’s capacity to meet the repayments. For an investment property, rental income, tenant quality and the lease become more important.

Some commercial property lending products use lease income as a central part of the assessment. For example, certain lease-doc products assess the rental income generated by a tenanted commercial property rather than relying on the borrower’s personal or business financial statements.

This distinction matters when comparing lenders. Two commercial real estate loan applications secured by similar properties do not necessarily receive the same outcome if their tenants, leases, business financials or ownership structures differ.

What Can A Commercial Property Loan Be Used For?

A commercial property loan has several common uses.

Buying Your Business Premises

Instead of leasing your workplace, you can purchase an office, warehouse, shop, factory or other premises for your business. The lender will usually assess the business financials because the business’s cash flow is expected to support the commercial mortgage repayments.

Buying A Commercial Investment Property

You can use commercial property finance to purchase real estate and lease it to another business. The lender will usually assess the rent, lease terms, property and borrower position. Depending on the product, an Interest Coverage Ratio may also form part of the assessment.

Refinancing A Commercial Property Loan

You can refinance an existing commercial property mortgage to another lender. Reasons for refinancing include obtaining different loan terms, restructuring debt, accessing equity or moving to a lender whose commercial lending policy better suits the property. Check the costs before refinancing. Commercial finance can involve valuation, application, legal, discharge and ongoing fees.

Releasing Equity

If your commercial property has increased in value or you’ve reduced the loan balance, you may have usable equity. A lender may allow equity to be released for an acceptable business or investment purpose, subject to its lending criteria.

Commercial Property Development

Commercial property finance is also available for certain developments.

Development finance is assessed differently from a standard commercial property purchase. The lender may examine the project’s feasibility, construction cost

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Commercial Property Loans In Australia

Commercial property loans in Australia are offered by major banks, smaller banks and specialist commercial lenders.

There isn’t one standard commercial lending policy across the market.

Lenders set their own requirements for:

• Maximum LVR
• Minimum and maximum loan amounts
• Acceptable property types
• Postcode and location restrictions
• Lease requirements
• Interest coverage
• Business financials
• Loan terms
• Repayment structures
• Companies and trusts
• Owner-occupied and investment properties

This creates an important difference between commercial and residential lending. With a standard residential property, lender policies often fit within relatively familiar parameters. Commercial property lending tends to become more dependent on the details of the transaction and security.

Current lender products show how different these structures can become. Some commercial products impose specific LVR and Interest Coverage Ratio requirements, while market-rate business facilities can offer substantially different loan terms and repayment structures.

For a borrower, comparing commercial loans based on the advertised interest rate alone misses much of the picture.

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How Much Can You Borrow For A Commercial Property?

The amount you can borrow depends on the property’s value and the lender’s assessment of your capacity to repay the loan.

The basic LVR calculation is: Loan amount ÷ Property value × 100 = LVR

For example, if you buy a commercial property valued at $1 million and borrow $700,000:

$700,000 ÷ $1,000,000 × 100 = 70% LVR

Your borrowing limit is not determined by the LVR alone.

A lender may also consider:

• Lease terms
• Property type
• Existing debts
• Rental income
• Tenant strength
• Property location
• Proposed loan term
• Borrower experience
• Interest commitments
• Other security available
• Interest Coverage Ratio
• Business income and cash flow

This creates two separate hurdles. The security needs to support the requested loan, and the lender needs to be satisfied that the debt can be serviced. Passing one test doesn’t guarantee that you’ll pass the other.

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Why Choose Home Loan Experts?

At Home Loan Experts, we’re here to have your back. What makes us different? We know the ropes when it comes to commercial loans, and we’ve built solid relationships with lenders. This means we can guide you through the process, making sure your application is strong, and the terms are right for you.

If you’re thinking about applying or just want to chat, call us on 1300 889 743

TALK TO AN EXPERT

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Commercial Property Loan Deposits And LVR

Commercial property loan deposits vary by lender, property and transaction. Commercial lenders often operate at lower maximum LVRs than lenders offering standard residential home loans. As a result, you may need to contribute a larger percentage of the purchase price yourself.

For example:

These figures illustrate the LVR calculation rather than the maximum available under a particular lender. Your required cash contribution may also need to cover stamp duty, conveyancing, valuation charges and other purchase costs.

The type of commercial real estate affects the acceptable LVR. Lenders may take a more conservative position on properties with limited resale demand, specialised improvements, short leases or location risks. Stronger properties and transactions may qualify for different lending terms.

This makes it useful to assess the property before signing an unconditional contract rather than assuming a particular commercial property loan LVR will be available.

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Commercial Property Loan Interest Rates

Commercial property loan interest rates aren’t priced in the same uniform way as standard residential mortgage rates.

• Your rate may depend on:
• Loan size
• LVR
• Property type
• Loan purpose
• Borrower strength
• Business financial position
• Lease and tenant strength
• Loan term
• Fixed or variable pricing
• The lender’s commercial risk assessment

Some lenders use a published business or commercial reference rate plus a customer margin. Others offer market-linked facilities based on a benchmark rate with a margin added. This is why two borrowers requesting the same commercial property loan amount may receive different pricing.

Fees matter as well. A commercial mortgage may involve application fees, valuation costs, legal fees, line or facility fees and other lender charges. Compare the total cost and structure of the facility rather than treating the headline rate as the only measure of a good commercial loan.

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Commercial Property Loan Requirements

Commercial property loan requirements depend on how the loan will be assessed.

A lender may request:

Personal Information

• Identification
• Personal assets and liabilities
• Details of existing debts
• Personal tax returns where required

Business Financial Information

• Business financial statements
• Business tax returns
• BAS statements
• Business bank statements
• Details of existing business debts
• Cash-flow information

Property Information

• Contract of sale
• Property valuation
• Current leases
• Rental information
• Tenancy schedule
• Details of the property’s use

Company Or Trust Documents

Where a company or trust is borrowing, the lender may require company, trustee and trust information. The exact documentation varies. Some commercial property loans require full financial information. Certain lease-doc structures rely more heavily on the property’s rental income and lease arrangements.

The right documentation path depends on the transaction rather than simply choosing the loan with the fewest documents.

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How Do Lenders Assess Commercial Property?

Commercial property valuations deserve more attention than they often receive.

The lender generally obtains a valuation of the property being offered as security. A commercial valuation may examine:

• Property condition
• Location
• Current rent
• Market rent
• Lease expiry
• Tenant profile
• Vacancy risk
• Comparable transactions
• Alternative uses
• Marketability

A lower valuation affects your LVR immediately. Suppose you agree to buy a commercial property for $1 million and expect to borrow 70%, or $700,000. If the lender values the property at $900,000 and bases its lending decision on that valuation, the proposed $700,000 loan represents an LVR of about 77.8%.

You may need to contribute more money, reduce the loan or find another acceptable structure.The valuation risk is worth considering before you commit all available cash to the deposit.

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What Is Interest Coverage Ratio?

Interest Coverage Ratio, or ICR, measures the relationship between income and the interest payable on the debt.

A simplified calculation is: Income available for interest payments ÷ Interest expense = ICR

For example, an ICR of 1.5 means the relevant income is 1.5 times the interest expense under the lender’s calculation.

ICR is particularly relevant to commercial investment property because lenders want to know whether the property’s income provides sufficient coverage for its finance costs.

The lender’s calculation may differ from your own cash-flow estimate. Assessment rates, allowable income and expenses can affect the result.

Some commercial lending products publish minimum ICR requirements. CommBank’s Lease Doc loan, for example, currently lists a minimum ICR of 1.5 times alongside a maximum LVR of 65% and other eligibility requirements.

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Commercial Property Loan Repayments

Commercial property loan repayments may be structured as principal and interest or interest only.

Principal And Interest

Each repayment covers interest and reduces the outstanding loan principal.

This progressively reduces your debt during the loan term.

Interest Only

Your scheduled repayments cover interest during the interest-only period, while the principal generally remains outstanding unless additional repayments are made.

This may suit some investment or business cash-flow strategies, but it leaves more principal to repay or refinance later.

Commercial loan terms also need attention. The loan term and the period over which repayments are calculated are not always the same thing. Some commercial facilities have shorter contractual terms than residential mortgages, which means you may need to refinance, renegotiate or repay the remaining balance when the facility matures.

Ask what happens at the end of the commercial loan term before accepting the facility.

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Commercial Property Loan Vs Residential Home Loan

Commercial property loans and residential home loans are both secured by real estate, but lenders assess them differently.

Residential serviceability tests usually apply

A borrower who qualifies comfortably for a residential home loan should not assume the same lender will approve a commercial property mortgage on similar terms.

The security, servicing method and lender policy have changed.

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Owner-Occupied Vs Investment Commercial Property Loans

The purpose of the property affects how lenders assess the application.

With an owner-occupied commercial property, your business operates from the premises. The lender will usually need to understand whether the business generates enough income to support its debts.

With a commercial investment property, another business occupies the property and pays rent. The lease, rental income, tenant and property become central parts of the lending assessment.

A strong lease doesn’t remove every other lending requirement. The lender still needs to be comfortable with the property and the overall transaction. Identifying the loan purpose correctly at the start helps narrow the lender search.

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What Properties Are Harder To Finance?

Some commercial properties require a more specialised lending approach because fewer lenders accept them or because lenders apply tighter conditions.

Examples may include:

• Restaurants
• Service stations
• Hotels and pubs
• Childcare centres
• Places of worship
• Rural commercial properties
• Purpose-built medical facilities
• Properties in small regional towns
• Properties with environmental concerns
• Properties designed for a narrow industry
• Commercial properties with significant vacancy

A specialised property isn’t automatically unacceptable security. The question is which lenders accept that security type and under what conditions.

For example, a lender may reduce its acceptable LVR, request additional financial information or apply different servicing requirements. Finding this out before lodging an application reduces the risk of approaching a lender whose policy doesn’t suit the property.

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How To Apply For A Commercial Property Loan

A commercial property loan application starts with the transaction rather than the application form.

1. Define The Loan Purpose

Confirm whether you’re purchasing, refinancing, investing, occupying the premises through your business or releasing equity.

2. Work Out Your Contribution

Calculate the proposed loan, LVR and cash contribution, including money required for purchase costs.

3. Review Your Financial Position

Gather the financial documents relevant to the proposed loan structure. For business borrowers, this may include recent financial statements and tax returns. For a commercial investment property, current lease and rental information may also be required.

4. Assess The Property

Check the property’s type, location, use and tenancy arrangements against lender requirements. This step is particularly important for specialised commercial real estate.

5. Compare Suitable Lenders

Compare lenders based on their willingness to accept the transaction, not the interest rate alone. Look at:

• LVR
• Fees
• Loan term
• Guarantees
• Interest rate
• Property policy
• Repayment structure
• Security requirements
• Servicing requirements
• Financial reporting requirements

6. Obtain Approval And Valuation

The lender assesses the application and normally arranges a commercial valuation.

The valuation and credit assessment may affect the final loan amount and conditions.

7. Review The Loan Offer

Check the approved amount, interest rate, fees, repayment requirements, loan term, security and conditions before proceeding to settlement.

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Why Use A Commercial Property Loan Broker?

Commercial lending becomes difficult to compare because lenders don’t assess every transaction using the same rules. A broker can assess the transaction before deciding where the application should go.

At Home Loan Experts, the starting point is to understand four things: what you’re buying, how much you need to borrow, how the debt will be serviced and who will own the property.

Those details help narrow the lender options.

This matters with commercial property because an application may involve a company or trust, business income, lease income, specialised security or a combination of these factors.

A commercial mortgage broker can also help you compare:

• Lender appetite for the property
• Maximum LVR
• Financial-document requirements
• Serviceability methods
• Commercial property loan rates and fees
• Loan terms
• Repayment options
• Commercial loan structures

The aim is to find a lender whose credit policy fits the transaction before you submit the application.Speak with Home Loan Experts about your commercial property loan and we’ll assess the property, borrowing structure and available lending options.