Supermarket Loans

Essentially priced out of the market by the likes of Woolworths, Coles and Aldi, truly independent supermarkets can be great investments if you can find them.

There are strong performing freehold retail complexes out there but not many banks have an appetite to finance them.

If you have a strong tenant in place and the property itself is non-specialised, you’ll have a better chance of getting approved for a supermarket loan.

How much can I borrow?

Some lenders take a conservative approach when it comes to lending for supermarkets because they’re often considered as specialised properties.

With our best lenders:

• Freehold property: Borrow up to 50-65% of the value of the supermarket security.
• Refurbishment/fit-out: 50% of balance sheet or earnings before interest, tax and depreciation (EBITD) (up to 80%).
• Borrow 100% of the purchase costs: If you have sufficient equity in residential real estate. Guarantor option not available.
• Low doc options: Available with one of our lenders (freehold only).
• Freehold loan term: 15 years or 30 years using a residential property as security.
• Fixed rates: Up to 5 years.
• Interest only: Up to 5 years.
• Interest rate: Discounts available by negotiation and depending on the strength of your application.
• Business financials: Current tenants need to show strong turnover.
• Yearly reviews: Usually a requirement but it depends on the strength of the tenant and lease in place.
• Loans over $5 million considered on a case by case basis.

Do you qualify for a supermarket loan?

Call us on 1300 889 743 or complete our online assessment form to speak with one of our specialist mortgage brokers today.

How can we help?

We’re experts in specialised commercial properties like independent supermarkets.

Choosing the wrong lender can quickly see your application knocked back!

Each lender has their own risk appetite and it changes all the time. As expert mortgage brokers, we’re on top of these lending policy changes.

We can give you a strong chance of getting approved the first time around, negotiate a great commercial interest rate on your behalf, and help you to borrow the maximum amount you need.

How do I prepare for the application?

Are you just buying the freehold without the business?

Like any other type of mortgage application, you should be in a stable financial position and earning enough income to support the loan amount.

The bank will also consider your current level of debt and the strength of your credit file.

This is known as your “serviceability” although it also feeds into the strength of your character as a borrower

Initially, you just need to provide your last 1-2 payslips and a tax return showing your net income.

If you’re self-employed, then have your last 2 years business and personal tax returns prepared.

Luckily, with a low doc loan, you can simply provide an accountant’s declaration of your income position.

How will the tenant be assessed?

Blue-chip tenant

Most banks limit supermarket loans to properties with blue chip tenants in place such as IGA or Foodworks.

However, each application is assessed on its merits so get in contact with one of our brokers to discuss the nature of your tenant.

Long term lease

Banks like to see at least a 5-year lease in place with an option to renew.

Some lenders will actually consider a lease with just 12 months remaining as long as the tenant is intending to either renew or you have a new tenant ready to sign on.

Good business financials

You’ll need to provide the bank with the last 2-3 years financials for the current tenants including bank statements and profit and loss figures.

As a general rule, the business must meet the following benchmarks:

• Interest cover: Earnings before interest, tax and depreciation (EBTID) should be more than 3% of total interest.
• Gross profit: Should be more than 20% of total sales.
• Gearing: Total liabilities or debts should be less than 75% of total assets.
• Debt-service coverage ratio: EBITD should be more than 1.2x total interest plus principal payments.
• Stock turn days: Less than 25 days.

Are you planning to run the business yourself?

Most lenders will only finance the purchase of a freehold commercial property but a few will consider your application if you’re planning to buy the freehold as a going concern.

Our mortgage brokers can help you to build a strong business case.

You need business experience

Banks like to see that you have at least 3-5 years experience in managing a supermarket or a retail store of a similar size.

However, if you’re planning to retain or hire experienced managerial staff from your previous role then this may mitigate this requirement.

A business plan

Banks want to see that you’ve done your diligence and spoken with a qualified accountant to draft up a business plan.

The business plan should detail your cash flow forecasts for the business and provide a comprehensive SWOT analysis (abbreviation for Strengths, Weaknesses, Opportunities and Threats).

For example, the plan should include competitor research for the local area.

A good tenant mix can support healthy traffic and positive consumer environment but it can also bring with it increased competition.

You’ll need to show that you have strong business and marketing acumen to stay profitable in a business that operates on a low profit margin.

Luckily, independent supermarkets are often in a position to weather the impacts of direct competition.

Consider joining an industry association like the Australian Retailers Association for more tips on running a successful retail business.

You need some hurt money

Banks won’t finance all of your capital requirements, particularly when it comes to start-up capital.

You need to show that you have money on standby that you can inject into the business if you need to.

Once you’ve established your business and can provide evidence of strong turnover, we can help you to qualify for any business finance that you need.

This includes invoice discounting and equipment finance.

What do banks look for in the property?

Location

Most banks prefer independent supermarkets in metro locations or regional centres with a good population.

Banks have a lot of data on commercial occupancy rates across Australia.

They’re very wary of locations that have suffered from a lull in their economy and this is usually reflected in high vacancy rates.

The supermarket itself should be near a main road or a central shopping district with plenty of foot traffic.

Zoning

Most independent supermarkets are zoned mixed use so they fall under the Commercial 1 Zone category with most councils.

Banks are ok with this zoning.

Other independent supermarkets may be zoned Commercial 2 zone, a characteristic of office suites, manufacturers, factories and warehouses.

Commercial 2 zoning is a bit of a hybrid zone in that it includes some industrial real estate.

Some lenders may take a conservative approach to this location because there can be limited tenant mix to attract customers, particularly on weekends.

Store size

While there isn’t a restriction on store size, it’s important to note that large floor spaces in metro/city locations can come at a premium.

This may, in turn, limit the Loan to Value Ratio (LVR) you can qualify for, requiring you to come up with a bigger deposit.

Purpose-built versus specialised

Convenience stores, variety stores, beauty salons and clothing stores are considered standard commercial properties by the banks.

The reason is that they can easily be stripped and converted to appeal to many different types of business tenants.

A purpose-built retail property is something that’s built for a specific purpose, such as a butchers store or delicatessan.

A butchers shop is equipped with cool rooms and the floors are generally built to invert towards drains.

Banks are conservative when it comes to lending for these properties because they only appeal to a certain type of buyer.

In the event that you default on the supermarket loan, the bank may not be able to sell the property quickly or even recoup their losses if they can’t get a decent price on the sale.

Tips for buying a supermarket

The tenant

It’s good to enlist some expertise from an accountant and a commercial buyers agent so you have a bette chance of identifying good investment opportunities.

The buyers agent will always go in for the hard-sell so keep your wits about you and do your due diligence.

In particular, ask for the business financials of the current tenant.

Are they a new tenant or have they been operating for a while?

Business stress can be a sign of mismanagement or it may be something deeper going on with the particular location such as direct competition from a major player.

Other times, there may a downturn in the local industry resulting in low consumer sentiment. This is where a good accountant can help.

A good place to start is asking the landlord why they’re selling in the first place.

If you decide to proceed with the purchase, it’s important to speak with a solicitor that specialises in commercial properties.

They can help you toensure that the Heads of Agreement is in your best interests and that the vendor “makes good” any repairs needed to be made to the building/s.

It’s also important to have a handover process in place with the vendor. You don’t want any nasty surprises after you’ve fully committed to the purchase.

The property

Independent supermarkets with the following attributes and characteristics are highly sought after by businesses:

• On-site parking.
• Central business location.
• Amenities.
• Good storage space.
• Loading dock with side roller door access and high clearance.

Do you need a supermarket loan?

Discover if you qualify!

Call us on 1300 889 743 or complete our online enquiry form to speak with one of our specialist mortgage brokers.