Landfills, garbage dumps and tips: it’s dirty work but someone has to do it and it could turn out to be one of the most lucrative investments you make.
Some banks will finance the purchase of a tip and even the purchase of a waste treatment business but what are the approval requirements for a commercial loan for landfill?
As a highly-specialised property, banks don’t have specific policies on landfill sites so it all comes down to putting together a strong application and being prepared to provide the bank with all the documents they ask for.
How much can I borrow?
Based on that, you may be eligible for the following:
- Freehold landfill property: Borrow up to 50% of the property value or more if you’re using a residential property as security. With a guarantor, you may be able to borrow up to 100% of the property value.
- Waste management business: Borrow up to 50% of the value of the business depending on how strong your business is.
- Maximum loan term: 5-10 years.
- No interest only term: Principal and interest (P&I) payments only.
- Loans over $5,000,000 are assessed on a case by case basis.
- Low doc loans unavailable: Full income evidence required for assessment.
- You’ll need substantial experience in the industry and yearly reviews will apply.
- A business plan will need to be provided if you plan to operate a business from the site.
- Interest rates may be negotiable depending on the strength your situation and security.
Do you want to speak to a mortgage broker about a landfill purchase that you need to finance?
How will my situation be assessed?
Since landfill sites are considered non-standard commercial properties, banks will only consider your application if you can show a strong financial position, you have experience in waste management and the site itself meets certain requirements.
As a general rule, banks don’t offer low doc options for landfill business loans. That means you’ll need to provide:
- Your last 2 years personal tax returns.
- If you’re running a business, your last two years tax portal and business bank statements.
- If asked, an accountant’s letter proving your financial position.
If you’re to buy the landfill and the waste management facility as a freehold going concern, the bank will also want to know what “hurt” money you’ll be injecting into the venture to get it up and running and make it sustainable.
Because most banks will only lend up to 50% LVR (Loan to Value Ratio) on a commercial loan for landfill, you’ll need to secure the rest of the commercial loan with cash or with equity in an existing residential property that you own.
Some lenders may accept a freehold commercial property as long as its standard commercial real estate.
Even if you’re not running the business yourself, most lenders won’t even consider your application unless you have managerial experience or operate your own venture in the waste management and recycling industry.
Banks very much take a resume style approach when assessing what experience and skills you’re bringing to the table because, ultimately, they want you to stay profitable and continue making your loan repayments.
If you’re buying a landfill site as a going concern, the bank will want to see that the current tenant is operating on a long term lease (typically 5-10 years) and that they’re in a good financial position.
The bank will check this by asking for the last 2-3 years ATO tax portals and business banking statements as evidence of recurring revenue.
How will the bank value the site?
Unlike factories and office buildings, landfill sites or garbage dumps are seen as very specialised commercial properties by the banks which means they can only be used for one purpose: waste disposal and treatment.
Although they fall under the infrastructure zoning category with most states, they actually sit in a sub-category known as ‘special purpose’.
Is the site EPA approved?
There is a high level of environmental risk when it comes to landfill sites, not least of which is soil contamination and the seepage of hazardous materials like asbestos into the water supply as a result of flooding.
When undertaking a valuation, the bank will at the very least want to see that the tip has been approved to operate as a waste management site as per the Environmental Protection and Biodiversity Conservation 1999 as well as your state’s relevant environment protection legislation.
The current operators will also need to have current licences relevant to type of waste treatment or disposal work being undertaken.
What’s the lifespan of the landfill site?
Going hand-in-hand with environmental considerations, you simply can’t continue to dump in a landfill site forever.
Based on the land size, a site can only accept a certain amount of waste (for instance, 300,000 tonnes) before it reaches capacity and effectively becomes worthless.
You won’t be able to sell the land and you won’t be able to lease it out for other business purposes because it’s a special uses category. The finite use of a landfill site is very unique compared to other commercial properties.
If the landfill site only has 3 years remaining before it reaches capacity, the bank will likely decline your landfill loan application.
However, if there is ten years remaining and there is an existing strong lease in place, you’ll have a better chance of getting approved.
Although a number of lenders have a property risk department, they really don’t understand landfill businesses. They’re really relying on the valuation report, which is only done by a handful of specialist valuers in all of Australia!
By doing a bit of homework yourself and taking into account environmental concerns and the lifespan of the garbage dump before applying for a commercial loan, you can save yourself tens of thousands for a valuation report for a site that likely won’t be accepted by the bank.
What type of landfill are you looking to buy?
Like other types of commercial properties or a freehold going concern, not all landfill sites are the same.
Consider what type material is being dumped or processed on-site: there can be considerable risk but also plenty of opportunity for you to take advantage of a unique business model if you can bring the right skills and experience to the table.
The different types of waste include:
- Municipal (including household, commercial and putrescible).
- Industrial (including manufacturing).
- Hazardous waste.
- Construction and demolition (includes concrete, timber and asbestos).
- Waste from electrical and electronic equipment (WEEE).
- Biodegradable municipal waste.
- End-to-life vehicles (ELVs).
- Agricultural waste.
Recycling plants in particular can be highly lucrative, particularly with governments around the world being pressured to reduce waste.
Land banking and zoning changes
With Australia’s growing population and plenty of land yet to be bought up for residential development, the demand for landfill sites and waste disposal businesses is continuing to grow.
In expanding rural locations and locations outside of metro areas there has been a surge in the number of land investors buying up quarries for the purposes of using the sites as landfill, particularly around the Central Coast area.
Along with residential development, the roll-out of a number of infrastructure projects (such as roads and train lines) over the next few years means there is also demand for the disposal of soil and construction material from excavation work.
There is actually a lot of room to capitalise on in the waste management industry, with the four largest operators only accounting for around 45% of total industry revenue (IBISWorld).
However, industry concentration is increasing with more and more councils outsourcing waste treatment and disposal services.
A best case scenario may be that you buy some land, hold on to it and eventually sell it off to one of the large operators at a considerable profit.
With a bit of forward thinking, some lenders will allow so-called “land banking”, that is, holding onto a quarry in the hopes that zoning will change and you can eventually operate or sell the land as a garbage dump.
You’ll need to present a strong application detailing your investment strategy and be in a strong financial position in order to be considered. Check out the vacant land commercial loan page for more information.
Threats to the waste management industry
In an effort to “go green”, the past few years has seen several states increase the government fee charged to individuals and companies to dump waste.
In addition to this, there is increasing pressure to recover wastes (known as recoverable resources) from landfill and to utilise them on productive agricultural land.
This may in itself present an opportunity if you can buy a waste management facility that specialises in this kind of work or you have the experience and capital start your own business on a landfill site.
Complete our free assessment form and let us know what your business plans are and we may able to get you approved for finance!
Tips on running a landfill site
Your state’s relevant Environment Protection Agency (EPA) website sets the minimum guidelines for operating a landfill site including:
- Monitoring and reporting protocols.
- Stabilising waste mass.
- Progressive rehabilitation of the site.
- Extraction of usable resources from waste material where possible.
You may want to also check out the Waste Management Association of Australia (WMAA) for guidelines and useful tips.
Apply for a commercial loan for landfill
Do you need a commercial loan for landfill?
We’re experts in getting finance for specialised commercial properties!
Call us on 1300 889 743 or complete our free assessment form to speak with one of our expert mortgage brokers about your plans to buy a landfill or waste management facility.