Business Loans

There are a variety of ways you can prove your income for a commercial property loan, including:

• Full Documentation. This is where you provide standard proof of income documentation as part of your application, such as tax returns, pay slips, or business financial statements prepared by your accountant.
• Lease Documentation. If you’re planning to lease your commercial property to a tenant, your lease documentation can be used to show that their lease payments will fully (or significantly) cover your future loan repayments.
• Low documentation. This can include your bank or BAS statements, business financial forecasts, and/or a letter from your accountant to verify your capacity to make loan repayments.
• No documentation. Some specialist lenders may be prepared to provide you with a commercial property loan with no documentation. But they will charge you higher interest rates and potentially additional fees to compensate for the increased risk.

The more documentation you can provide to demonstrate that your commercial property loan will be low-risk for the lender, the more you will be able to negotiate the loan’s terms, conditions, fees, and interest rates.

The features of a commercial property loan depend on:

• Whether the interest rate is fixed or variable. Interest rates can generally be fixed for up to 5 years, but you can’t make additional repayments on fixed interest loans like you can with variable rate loans.
• Whether the repayments are for principal and interest, or interest-only. The standard commercial loan term is 15 years for a principal and interest loan, and 5 years for an interest-only loan. However, you can negotiate for longer periods (especially if you have residential property as security against the loan).
• The lender and the type of loan. You might be able to negotiate additional features. For example, a redraw facility (to enable you to withdraw any additional repayments you make later, if necessary), a line of credit (allowing you to borrow more funds up to a pre-set limit), or perhaps even an offset account to reduce your interest. But you will usually be charged either a higher interest rate or additional fees for these features.

When you apply for a commercial property loan, lenders will sometimes require you to provide residential property as collateral security. This means that they may be able to repossess your home and sell it to recoup any outstanding debt, if you default on your repayments.

In addition, lenders might also ask you to sign a general security agreement, which provides the commercial property and/or your business assets as additional security. However, this shouldn’t be necessary if your residential security is sufficient to cover the loan.

If you apply for a commercial property loan with a different lender to the one you do your business banking with, most will require you to switch all your business accounts to them as part of the approval process. It increases their business and allows them to have a more complete picture of your financial affairs.

However, if switching banks is a hassle you’d like to avoid, you might be able to keep your business banking with your current bank, if you have residential property as collateral security and it covers your entire commercial property loan.

Because of their generally higher risk, commercial property loan applications have stricter criteria for approval. For example, in addition to collateral security, you might need to provide:

• A higher deposit. Different lenders will have different maximum LVRs that they’ll be prepared to accept. Each lender may also have different LVRs for different types of commercial properties. The higher the ratio, the more risk to the lender. A higher deposit lowers this ratio and therefore the lender’s risk. Depending on the lender and the type of commercial property loan, deposits of 20% or more of the purchase price may be required.
• A guarantor (i.e. an individual or an entity that contractually agrees to be responsible for your commercial property loan debt if you default on your repayments).

There are three important things you need to do:

1. Apply to the right lender. Different lenders specialise in different types of commercial property finance. It’s important to choose a lender who has experience with the type of commercial property you’re investing in and has a good reputation. You’ll be more likely to have your loan application approved and have less hassle if you do this.
2. Have a strong application. Provide as much evidence as you can to demonstrate you are a low-risk borrower and that your commercial property investment is attractive.
3. Be prepared to negotiate with the lender. For larger commercial loans (e.g. over $1 million), your negotiating power increases if you have a strong application.

Your commercial property should be in a high traffic area to attract plenty of customers for you or your tenant. It should also be accessible to public transport and surrounded by other complementary businesses. This will help your property to both retain its value over time as well as generate a relatively secure income.

Commercial property loans that lenders classify as higher risk or and/or that are for large amounts will sometimes be subject to an annual review. As part of this process, the lender will require you to provide your latest financial statements and business forecasts. They might also take the opportunity to re-value your commercial property if market conditions have changed.

This evaluation might place you in a higher risk category, enabling your lender to increase the loan’s interest rate or change other terms and conditions (for example, impose additional fees). It’s therefore important that you present this annual review information as comprehensively and accurately as possible so that your risk profile isn’t adversely affected.

But if your circumstances have improved, you can take the opportunity to potentially negotiate a lower risk profile to improve your loan’s terms and conditions.

There are many more considerations when applying for a commercial property loan than there are for most other types of finance. You need to do your homework and research the market before making any decision. But because commercial loan terms and conditions are negotiable, lenders don’t make that information readily available to allow you to compare their offerings.

Mortgage brokers like us regularly deal with commercial property loans from a wide variety of lenders. Accordingly, we are well informed about the commercial property loan market, including the lending criteria of different institutions and how far they may be prepared to negotiate.

We can help you find the best commercial property loan for your needs by taking the time to understand your situation. This includes liaising with your accountant and/or solicitor so their advice is taken on board. We can then help you to choose the right lender, as well as prepare and submit your application. Finally, we can negotiate the best possible commercial property loan deal on your behalf.