Commercial Property Loans: Get the Keys to Your Ideal Business Space

What Are Commercial Property Loans and How Do They Work?

Commercial property loans, sometimes called commercial mortgages, are used to finance the purchase of properties for business use or investment purposes. Common examples include:

• Office buildings
• Retail spaces and shops
• Industrial properties and warehouses
• Mixed-use properties
• Commercial strata units

In Australia, securing commercial finance typically involves property valuation, credit assessments, and demonstrating your business’s financial health. The process could take longer than residential home loans, usually because lenders closely examine the sustainability of your business operations and future earning potential.

Who Should Consider Commercial Property Loans?

Commercial property loans may suit a range of borrowers looking to buy, refinance, or develop property for business or investment purposes. You might consider this type of finance if you are:

• A business owner looking to buy their own space rather than continue renting.
• A commercial investor seeking long-term rental income or capital growth.
• A self-employed professional or sole trader looking for premises to run their operations.
• A developer planning to build or renovate commercial property.
• An SMSF trustee aiming to buy commercial property as part of a retirement strategy.

Common Uses for Commercial Property Loans

Commercial property loans can support a variety of business and investment goals beyond just purchasing real estate. Clearly defining your loan’s purpose can help ensure it’s structured in a way that aligns with how you intend to use the property.

Common uses include:

• Purchasing owner-occupied commercial premises – For businesses wanting to operate from their own property.
• Buying commercial investment properties – To generate rental income or capital growth.
• Refinancing existing commercial loans – To access better rates, restructure repayments, or unlock equity.
• Property development or construction – For building new commercial properties or completing major renovations.
• Business expansion – Using equity in existing property to fund equipment, staffing, or new locations.

Potential Benefits of Commercial Property Loans

Commercial property loans can offer a range of potential opportunities, depending on your unique financial situation and long-term business objectives. Some advantages you might experience when financing a commercial property include:

1. Long-term savings

Owning your business premises rather than renting can sometimes lead to lower long-term operating costs. By paying a mortgage instead of rent, you could build equity in a tangible asset, potentially offering greater financial stability.

2. Capital growth opportunities

Australia’s commercial property market has historically experienced periods of growth. Investing in commercial property could therefore lead to asset appreciation, potentially strengthening your overall business equity or diversifying your investment portfolio.

3. Possible tax advantages

Australian business owners may be eligible to claim interest repayments and certain property expenses as tax deductions. While this could potentially reduce your overall taxable income, it’s crucial to understand that tax outcomes vary greatly depending on individual circumstances. To ensure compliance and accuracy, it’s best to refer directly to the Australian Taxation Office (ATO) guidelines.

4. Greater control over premises

Owning commercial property may provide your business with greater freedom and flexibility. You can potentially customise your space to align with specific operational needs or brand image, without requiring permission from a landlord.

When carefully considered and aligned with your business strategy, these benefits could potentially position your business for stronger growth and stability in the Australian commercial property landscape.

Commercial Loan Options Available in Australia

Different types of commercial property loans are available to support different business models and financial situations. The right choice can support your overall strategy and goals.

Here are some of the more common commercial loan options available:

1. Standard Commercial Mortgages

Often suitable for established businesses with stable cash flow and solid financials. These loans are typically used to purchase office buildings, retail shops, warehouses, or industrial spaces.

2. Low Doc Commercial Loans

It may be ideal for self-employed individuals, start-ups, or small business owners who cannot provide full financial documentation. While the application process is generally more flexible, these loans may come with higher interest rates or stricter lending criteria.

3. SMSF Commercial Property Loans

Allow trustees of a Self-Managed Super Fund (SMSF) to purchase commercial property as part of their retirement strategy. These loans must comply with strict ATO regulations and lending rules, and any potential tax benefits will depend on your specific circumstances.

4. Development and Construction Loans

Designed for property developers or business owners planning to build or significantly renovate a commercial property. These loans are usually structured in stages, with funds released progressively as construction milestones are met.

Banks and Lenders Offering Commercial Property Loans

In Australia, a wide range of banks and non-bank lenders offer commercial property loans, each with their own lending criteria, interest rates, and product features. The lender you choose can affect the terms of your loan and how well they align with your business and financial needs.

Common commercial loan providers include:

• Major banks – Such as Westpac, NAB, Commonwealth Bank, and ANZ. These lenders often provide competitive rates for established businesses with strong financials.
• Second-tier banks – These lenders may offer more flexible lending solutions, particularly for businesses with unique needs or non-standard financials.
• Non-bank lenders – This can be a good option for borrowers with unique circumstances, such as low documentation or alternative credit histories.
• Specialist commercial lenders – Focused on niche industries or development finance, often with faster turnaround times and tailored loan structures.

Lenders vary in their risk tolerance, documentation requirements, and property preferences. A mortgage broker can help you find a loan that fits your needs. Contact us today!

How Much Can You Borrow With a Commercial Loan?

The amount you’re eligible to borrow for a commercial property loan depends on several factors, including the type of property, your financial position, and the lender’s risk assessment. Many lenders offer up to 70 to 80 percent of the property’s value, though the exact amount can vary depending on the circumstances.

Your borrowing capacity is also influenced by your business income, cash flow, credit history, the type of security you provide, and the purpose of the loan. Whether you are purchasing, refinancing, or developing a property, each purpose is considered differently.

Using a borrowing power calculator can give you an estimate of how much you might borrow, providing a helpful starting point when exploring your loan options.

What Can Be Used as Security for a Commercial Loan?

Lenders typically require security when you apply for a commercial property loan in Australia to help minimise their risk. The type of security you provide can influence your borrowing power, interest rate, and loan terms.

Common types of security accepted by lenders include:

• Commercial property – The property being purchased is often used as the primary security.
• Residential property – In some cases, your home or investment property may be used to strengthen the application or secure better terms.
• Multiple properties (cross-collateralisation) – You may be able to use more than one property as security to increase your borrowing capacity.
• Business assets or equipment – Less common, but sometimes considered for certain loan types or specialist lenders.

Eligibility Criteria For Commercial Property Loans

Australian lenders usually consider several key factors when assessing your eligibility and the level of risk for a commercial property loan. Knowing what lenders look for can help you present your application more effectively and improve your chances of getting approved:

• Business financial strength – Your recent cash flow, profitability, and financial history help lenders gauge your repayment capability.
• Property valuation and location – Lenders evaluate the property’s market value, condition and location, and often prefer properties in established or growth areas.
• Credit history – Both your business’s credit record and that of its owners or directors influence lender decisions, reflecting overall financial responsibility.
• Assets and liabilities – Detailed asset and liability statements provide lenders insight into your financial stability and net worth.
• Potential rental income – For investment properties, lenders usually consider projected rental income and occupancy rates, which impact your loan terms.

Required Documentation for Commercial Property Loans

Preparing the right documents in advance can make the commercial property loan process smoother and support a stronger application. While exact requirements vary by lender, most will ask for the following:

• Business financials – Profit & loss statements, balance sheets, and cash flow reports (usually for the past two years).
• BAS and tax returns – Personal and business tax returns to verify income and financial stability.
• Loan purpose or business plan – Explaining how the property will be used and how repayments will be managed.
• Identification documents – For all borrowers or directors involved.
• Property details – Including the contract of sale, lease agreements (if applicable), and recent valuations.
• Proof of deposit or equity – Such as bank statements or asset documentation.

Costs and Fees Associated With Commercial Property Loans

Applying for a commercial property loan involves more than simply looking at the interest rate. Several additional costs may apply, and being aware of them early on can help you budget more accurately and avoid unexpected expenses.

Common fees may include:

• Application or establishment fees – Charged upfront to set up the loan.
• Valuation fees – For assessing the market value of the property.
• Legal and conveyancing fees – Covering the preparation and review of contracts.
• Ongoing account or administrative fees – Regular charges for managing the loan.

Depending on your loan and lender, there may also be early repayment or break fees, especially with fixed-rate products, as well as government charges like stamp duty.

To better understand how these costs could impact your overall borrowing, it may be worth using a commercial property loans calculator. This tool can help you estimate potential repayments, compare loan scenarios, and see how different interest rates or loan terms might affect your cash flow.

Interest Rates and Terms for Commercial Property Loans

Commercial property loans interest rates and terms can differ significantly based on the lender, property type, and your financial profile. Unlike residential home loans, commercial loans are generally assessed with more emphasis on risk, business performance, and the property’s income-generating potential.

Factors That Influence Interest Rates for Commercial Property Loans:

• Loan type and purpose – Owner-occupied properties may attract lower rates than commercial investment property loans or development loans.
• Loan-to-Value Ratio (LVR) – A lower LVR (larger deposit) may result in more competitive rates.
• Borrower profile – Credit history, business stability, and income can all influence pricing.
• Loan term – Shorter terms may have lower rates, while longer terms offer more repayment flexibility.

Typical Commercial Loan Terms in Australia:

• Loan terms often range from 1 to 25 years, depending on the loan structure and property type.
• Repayment options may include principal and interest or interest-only (especially during development or early ownership).
• Fixed or variable rates are available, and some lenders offer split loan options.
• No standardised interest rate – Rates are negotiated case by case, and may start from around 6% p.a., depending on market conditions (subject to change).

Risks and Considerations of Commercial Loans

While commercial property loans can support business growth or investment, they also come with risks that are important to consider:

• Higher interest rates and fees than typical residential loans.
• Shorter loan terms, often requiring higher repayments.
• Vacancy risks if rental income is relied upon to service the loan.
• Market fluctuations that may influence the property’s value and your equity position.
• Stricter lending criteria and more complex documentation requirements.

A Simplified Guide to the Commercial Property Loan Application Process

Applying for a commercial loan usually follows a few important steps:

1. Property evaluation

Begin with thorough research on the commercial property market, considering location, property type, potential returns, and conducting valuations or inspections to confirm suitability.

2. Document preparation

Assemble key financial and property-related documents, including recent financial statements, business and personal tax returns, property details, valuation reports, and, if applicable, your business plan or investment projections.

3. Broker consultation

Working with an experienced commercial mortgage broker at this stage could save time by potentially connecting you to suitable lenders, simplifying loan comparisons, and guiding you through lender-specific requirements.

4. Application and negotiation

With your broker’s support, submit your application to your chosen lender. You may then have opportunities to negotiate competitive interest rates, repayment terms, and loan conditions suited to your business goals.

5. Approval and Settlement

Once approved, finalise all loan documentation and conditions. Your broker can help ensure a smooth settlement process, allowing you to complete your commercial property purchase efficiently.

The commercial loan process can feel complex and time-consuming. Our mortgage brokers in Melbourne help simplify the process by supporting you through each step and finding a loan that fits your goals. Reach out to our team today!

Get Started on Your Commercial Property Loan Today

Securing a commercial property loan can open new opportunities for your business. Whether you are buying your first premises, expanding into new locations, or investing for the future, the right finance solution can help support your long-term goals. As you have seen, commercial lending involves a range of options and considerations, from loan types and interest rates to eligibility and lender requirements.

Trusted Finance Solutions, your premier mortgage broker in Moonee Ponds, is here to guide you through the next steps. From comparing lenders to managing paperwork and settlement, we keep the process clear, efficient, and focused on your goals.

Start planning your next move today. Contact us to explore commercial property loan options tailored to your business goals.