- Most lenders lend up to about 70% of the property's value, and some go to 80%.
- The lease, the tenant and the borrower’s business all affect approval and pricing.
- Terms are often shorter and some loans are reviewed every few years.
What counts as commercial property
Lenders group commercial property into types such as office, retail, industrial and warehouse, medical, and mixed use. Specialised property such as childcare centres, hotels, service stations and farms is assessed separately and fewer lenders finance it.
How they differ from home loans
- Deposit: most lenders lend up to about 70% of the value. Some lend up to 80% for strong borrowers and well-located property.
- Term: commonly up to 15 to 25 years, sometimes with a review of the facility every three to five years.
- Rate: usually higher than a home loan and priced on the property, the lease and the borrower’s financial position.
- Valuation: a commercial valuation looks at the lease, rental income and comparable sales, and takes longer than a residential valuation.
- Insurance: lenders mortgage insurance is generally not available, which is one reason deposits are larger.
Owner-occupied or investment
If your business will occupy the property, the lender focuses on your business’s financial statements and its ability to meet the repayments. If you are buying an investment, the lease, the tenant’s strength and the remaining lease term carry much more weight.
What lenders usually ask for
- Two years of business and personal tax returns and financial statements, or alternative documents for low doc loans.
- An ATO statement showing tax lodgements and any debt.
- The contract of sale and the current lease, including rent, term and options.
- Details of your other assets and liabilities.
Before you sign a contract
Get the deal assessed before you sign, particularly if the contract has a short finance clause. Check the lease terms and which outgoings the tenant pays, and speak to your accountant about the right ownership structure, whether that is you personally, a company, a trust or your SMSF.
This article is general information only and does not take into account your objectives, financial situation or needs. It is not credit, tax or financial advice. Lender criteria and government schemes change, so check current details and seek advice before acting.