Commercial Property Loans

Commercial property loans are financial solutions designed to help businesses acquire, refinance, or develop commercial real estate. These loans are vital for companies seeking to grow, invest in investment property, or establish a dedicated space for their operations. Commercial loans offer more flexibility than traditional home loans, with many terms, such as interest rates and repayment schedules, negotiable to suit the specific needs of your business.

These loans may be suitable if you’re:

• An investor aiming to generate rental income and long-term capital growth through commercial property, either directly or via a self-managed super fund (SMSF). While commercial property can offer strong returns, investors should also consider the risks, including longer vacancy periods, complex valuations, and a smaller pool of potential buyers compared to the residential market. The property’s location plays a key role as well, with the local economy influencing both value and tenant demand.
• A business owner looking to purchase premises for your own operations. Owning the property can reduce long-term rental costs and provide more stability than leasing. It can also be structured as a business asset or held personally, giving you the dual benefit of supporting your company’s operations while building personal wealth. This is especially valuable for entrepreneurs who plan to grow their business over time.

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What Is A Commercial Property Loan?

A commercial property loan is a type of mortgage used to purchase or refinance real estate that is intended for business or investment purposes. This includes properties like retail shops, factories, medical centres, and office buildings. These loans differ from standard home loans in terms of eligibility requirements, risk assessment, and flexibility in terms and structure.

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How Does A Commercial Property Loan Work?

When you’re ready to apply for a commercial property loan, knowing what to expect can help. Here’s a simple guide to the steps you’ll take, the documents you’ll need, and how to make the process go smoothly.

The application process typically unfolds this way:

1. Initial Consultation

We start by talking with you to understand your business goals and financial needs. This helps us determine the best loan options for your commercial property.

2. Document Submission And Review

You’ll provide us with the necessary documents, such as financial statements, property details, and any relevant business plans. We review these to get a clear picture of your financial situation and objectives.

3. Lender Negotiation

With a solid understanding of your needs, we reach out to various lenders to negotiate the best terms for your loan. Our goal is to find a lender who not only approves your loan but also offers favourable terms, including competitive interest rates.

4. Indicative Funding Proposal (IFP)

After discussions with potential lenders, we’ll present you with an Indicative Funding Proposal (IFP). This outlines the likely terms of your loan, giving you a clear idea of what to expect.

5. Application Submission

Once you approve the IFP, we will arrange a property valuation and submit a full loan application to the selected lender. This includes a detailed financial review and a compelling presentation of your case.

6. Co-ordination with Your Team

Throughout the process, we co-ordinate with your solicitor and accountant to make sure their insights are incorporated, helping to secure the best outcome for your business.

7. Finalisation

If the lender raises any concerns, we’ll work with you to address them, possibly renegotiating terms or providing additional documentation. Once you receive approval, we finalise the loan by ensuring all conditions are met, and the funds are ready for your property purchase or investment.

8. Adding Extra Value

Our expertise doesn’t end with securing your loan. We also offer guidance on increasing the value of your commercial property by making it more attractive to potential buyers or tenants.

Checklist

Required Documentation

The documentation required for a commercial property loan can vary depending on the lender and the complexity of your application. Below is a comprehensive checklist of documents you may need to provide:

Identification & Entity Documents

• Driver’s licence and/or passport (100 points of ID)
• Company registration / ASIC company extract
• Trust deed (if applying under a trust)
• Partnership agreement (if applicable)

Financial Documents

• Last 2 years of business financial statements (Profit & Loss, Balance Sheet)
• Interim financials (if the most recent financials are over 6 months old)
• Last 2 years of business tax returns
• Last 2 years of personal tax returns (for directors/guarantors)
• Notices of Assessment (ATO)
• ATO portal statement (for tax debts)
• BAS statements (last 2–4 quarters)

Loan Purpose Documents

• Written explanation of loan purpose
• Contract of Sale (if purchasing property)
• Existing loan statements (if refinancing)
• Quotes/invoices (if purchasing equipment or assets)

Personal Financials

• Statement of Position (Assets & Liabilities)
• Details of any property ownership, investments, debts, superannuation, etc.
• Cash Flow / Business Forecasts (if applicable)
• 12-month cash flow forecast
• Business plan (required for startups or complex transactions)

Security Documents

• Property details (address, title, or folio number)
• Existing mortgage statements (if refinancing)
• Valuation report (if requested by the lender)

Insurance

• Certificate of Currency (property, asset, or liability insurance)

Having these documents ready can speed up the loan approval process and help your broker or lender assess your application more accurately. If you’re unsure about any of these items, your mortgage broker can guide you through what’s required for your specific scenario.

How to Calculate Commercial Property Loan Repayments

Understanding the interest rates and terms of a commercial property loan is essential.

Here’s a quick overview:

• Your interest rate can be variable, changing with the market, or fixed, staying the same throughout the fixed term. Use a Loan Repayment Calculator to estimate your monthly payments and total interest.
• Comparison Rate Calculator can give you a clearer picture of your total loan’s cost, including the interest rate and additional fees, so you know exactly how much you’re paying.

Terms

Full-doc: Individuals, companies, trusts and self-managed superannuation funds are acceptable.
Term: 25-30 years.
Interest-only: Up to 5 years (longer on application).
Interest rate type: Variable, fixed (up to 5 years).
Additional repayments: Allowed on variable loans.
Redraw: Allowed for amounts that you have pre-paid but might incur fees.
Offset accounts: Available.

What Are The Pros And Cons Of Commercial Property Loans?

Pros

• Commercial loans often come with flexible loan structures, allowing you to tailor repayments, interest rates, and loan features to suit your financial situation.
• Possibility to generate strong rental yields and deliver long-term capital growth, particularly in high-demand sectors.
• Interest payments and some associated costs may be tax-deductible, improving your investment’s overall return.
• For owner-occupiers, owning your premises can reduce reliance on leasing, protect against rental increases, and provide long-term stability.
• Owning commercial property can help grow your personal or business wealth, especially if purchased through structures like SMSFs or trusts.

Cons

• Commercial loans usually require a deposit of 20–30% or more, which can tie up capital.
• Property values and rental demand can be influenced by market volatility, especially in specialised sectors.
• Variable rate fluctuations can impact your repayment amounts over time. While fixed rates offer stability, they may come at a higher cost.
• Vacancies or tenant defaults can strain your cash flow. Properties with long-term, reliable tenants are usually more favourable.
• Lenders require detailed financial documentation and may conduct stricter assessments compared to residential loans.
• Compliance requirements and legal fees can add to your investment costs and should be factored in early.

Who Can Qualify For A Commercial Property Loan?

When applying for a commercial property loan, it’s important to know what lenders typically demand. These requirements will determine your eligibility and the loan terms you may receive.

Key factors lenders consider:

• Credit Score: A strong credit score is crucial. Lenders will assess your credit history to gauge your reliability in repaying loans. A higher score improves your chances of getting approved and securing favourable terms.
• Financial History: Lenders will review your business’ financial records, including profit-and-loss statements, tax returns, and balance sheets. A solid financial history demonstrates your business’ stability and ability to manage debt.
• Business Revenue: Consistent and sufficient revenue is vital for loan approval. Lenders want to ensure your business generates enough income to cover loan repayments comfortably.
• Loan Amount: The loan size you’re seeking should align with your business’ financial capacity. Lenders are cautious with higher loan amounts, as they pose greater risks.
• Collateral: Most commercial property loans require collateral. Standard properties like offices, factories, and retail spaces are preferred, as they are easier to value and sell. Specialised properties like hotels, farms and restaurants may pose higher risks and require a more detailed assessment.

Commercial Loan Eligibility And Types Of Security

The type of property you’re securing the loan against affects your eligibility:

• Standard Properties: These include offices, retail spaces, and residential blocks, which are generally easier to finance due to their broad market appeal and straightforward valuation.
• Specialised Properties: These are harder to finance, as they are more challenging to value and sell. Examples include hotels, aged-care facilities, and petrol stations. Such properties may require a higher deposit and a more detailed risk assessment by the lender.

Commercial Property Loan Purpose

The purpose of your loan can affect the terms and conditions:

• Investment (Low Risk): Loans for purchasing or refinancing commercial property that will be leased out.
• Owner-Occupied (Medium Risk): Loans for buying or refinancing property that your own business will occupy.
• Working Capital (High Risk): Loans used to finance daily operations or address liquidity shortfalls.

Proving Income for A Commercial Property Loan

Income verification varies depending on the type of loan:

• Full Doc: Requires complete financial statements.
• Lease Doc: Requires proof that lease income covers loan repayments.
• Low Doc: Requires partial income evidence, such as bank statements.
• No Doc: No income evidence is required, though this is typically available only from non-bank lenders and comes with higher interest rates.

Mitigating Lender Concerns

If a lender has concerns, you can:

• Provide additional information to address their worries.
• Adjust your situation to align more closely with their lending requirements, such as lowering your Loan-to-Value Ratio (LVR).
• Negotiate the loan terms to better reflect the risk level.

Understanding eligibility requirements and the factors that influence loan approval will help you prepare a strong application and increase your chances of securing a commercial property loan.

Case Studies: Successful Commercial Property Loans

The Situation	The Solution	The Result
Rameshwara Prabhu, a successful medical professional, aimed to expand his investment portfolio by purchasing a commercial property under a family trust. Despite his financial success, he faced several challenges: diverse income sources made it hard for lenders to assess his financial stability, multiple existing liabilities complicated his borrowing capacity, and the legal complexities of buying through a family trust further hindered the process. Additionally, his preference for an interest-only loan, considered riskier by lenders, also posed an obstacle.	Mortgage Broker Romy Dhungana recognised the complexities in Rameshwara’s case and developed a targeted strategy. He thoroughly analysed Rameshwara’s financial situation, highlighting his income stability despite the challenges. Romy also navigated the legal intricacies of the family trust purchase, ensuring all necessary documentation was in place. To address the concern of limited borrowing power and the interest-only loan preference, Romy conducted in-depth market research, identifying a lender willing to offer the crucial 80% LVR needed for the purchase. By presenting a strong case, backed by detailed financial insights and collaboration with a commercial BDM, Romy successfully mitigated the perceived risks.	Rameshwara secured the 80% LVR loan of $2,020,000 for his $2,525,000 commercial property, with terms that included an interest-only option at an 8.40% rate over 30 years. The tailored approach not only met Rameshwara’s immediate needs but also strengthened his trust in Romy’s expertise, leading him to return for future refinancing. Click here to read the full story.

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

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