This is the most comprehensive guide to commercial property loans on the planet.
The best part?
I’m going to show you how to understand commercial property loans, the different bank (and non bank) policies and interest rates that apply right now (in 2019).
In short: if you want a commercial property loan with the best interest rate, you’ll love this guide.
Let’s get started.
- Chapter 1: Commercial Basics
- Chapter 2: Finding the right Lender
- Chapter 3: Product Features
- Chapter 4: Choosing a Lender (including bonus case study)
- Chapter 5: Annual Reviews
- Chapter 6: Mortgage Broker or Bank
- How to apply for a commercial property loan?
Chapter 1: Commercial Basics
In this section, I’ll show you the basics of Commercial Property Loans. First, you’ll learn how much you can borrow. Then I’ll help show all the available options across the Australian lending market.
Step #1: How much can I borrow?
First things first, with commercial lending the amount you can borrow is largely determined by the security held by the lender.
A shopping centre or office is considered much safer than an unsecured cash flow business.
For the purposes of this guide, we are just talking about secured commercial property loans:
- ✅ Borrow up to 100% if you have a guarantor, or additional collateral to secure the loan.
- ✅ Borrow up to 80% if the property is valued up to $1 million.
- ✅ Borrow up to 75% if the property is valued up to $2 million.
- ✅ Borrow up to 70% if the property is valued up to $5 million.
In other words, if you are buying a $1 million commercial property you will need a 20% deposit.
If the property is valued over $5 million, and up to $100 million we have lenders and banks that will look at these case by case.
Step #2: What type of security can I use?
The major difference between commercial lending and regular home lending is the security property involved.
With commercial lending, the security is generally commercially zoned like a factory or office building but some common properties include:
- ✅ Warehouses
- ✅ Office Buildings
- ✅ Shopping Centres
- ✅ Factories
- ✅ Shops
- ✅ Land Subdivisions
- ✅ Residential Property Development Finance
- ✅ Block of Strata units
- ✅ Block of Flats
- ✅ More than three units in the one development
The banks also look at specialised commercial properties as security.
As some of these are considered higher risk, they might require a higher deposit and more detailed analysis around the valuation completed.
- ☑️ Short Term Accomodation, like a motel, hotel or caravan park.
- ☑️ Aged Care, like residential care and respite centres
- ☑️ Child Care and Montessori centres
- ☑️ Petrol Stations, and specialised retail outlets
- ☑️ Management rights
- ☑️ Shopping Villages, and Neighbourhood retail centres
- ☑️ Englobo Land, and speculative land banking sites
Step #3: Types of commercial lending (purpose)
The big point of difference between residential lending, and commercial lending is that the latter is not regulated by the National Consumer Credit Protection Act (NCCP).
In other words, commercial property borrowers do not have the same consumer protections as home lending. The type of commercial lending purpose will ultimately affect how the lender will assess, and price your loan.
- ✅ Investment – This is considered the lowest risk, an example is to purchase or refinance a commercial property that is held for rental purposes.
- ✅ Owner Occupied – This is considered a medium risk, an example is to purchase or refinance a commercial property that you operate your own business out of.
- ✅ Working Capital – This is considered high risk by most lenders, an example of working capital is using the funding to help your businesses day to day operations.
- ✅ Other – Any other purposes falling outside of the 3 above are considered on a case by case basis for all lenders, an example of this would be buying a real estate agent business.
The security property will not determine the purpose of lending, the purpose is what the funds are ultimately going to be used for and this determines if the loan is regulated under the NCCP or not.
Put another way, using a commercial property as security to borrow funds to purchase a new home that you want to live in could mean the NCCP would apply, and some lenders may not be able to approve your loan on this basis.
Step #4: What income will I need?
Commercial lending is less strict when it comes to verifying income because there are less legislative restrictions.
(Compared to residential lending)
The benefit for commercial borrowers is that the lenders are not required by law to show a borrow can afford the loan to the level they do with home mortgages…so don’t worry, they aren’t going to question your Uber Eats habits.
This ultimately means you have more income verification options:
- ✅ Full Doc: This is a regular loan application, you need to provide the last 2 years tax returns and financial statements to show your income is higher than the interest costs.
- ✅ Lease Doc: You only need to provide rental income from the investment that is higher than the interest costs.
- ✅ Low Doc: You only need to provide basic income verification being a letter from your accountant or BAS statements to confirm your income is higher than the interest costs.
- ✅ Forecasted Income: You can provide financials, including your profit and loss statements showing the business is expected to grow its income to cover the interest costs.
Now while there are less stringent requirements on income verification with commercial lending, the banks (and lenders for that matter) will not give money to people that cannot afford their loan repayments. So it would be unrealistic to expect your loan to get approved if its too high a risk for the lender.
Chapter 2: Finding the right Lender
In this section, I’ll share the tactics I use to find the right lender for you.
As you know, when you find the right lender that fits with you, you’ll usually find you will receive a sharper interest rate and better terms.
And using our steps below you’ll get a TON of ideas to help you find, and settle the BEST commercial property loan.
Here’s how to do it:
Step #1: Which lender does what?
The biggest difference between the lenders is their risk tolerance, type of security they specialise in and how they verify income.
Add to this that all of these lenders policies are constantly changing, and with commercial lending is determined by lots of different variables – the security type, your income situation, the lenders current risk appetite, the leverage required and risk tolerance – it’s hard to give a broad brushed ’this lender will be right for you’ answer here.
In other words, each application and security property is unique.
What I’ve tried to do is give you a high-level overview of the current commercial lending market in Australia, with the players and their areas of expertise.
Most of the banks offer their own commercial property loan products and have limited areas of specialty but if you are buying a simple investment like a warehouse or an office they are going to give you some of the sharper rates in the market
…but won’t give you the highest leverage, because the majority of these banks will only go to 65% LVR on commercial property.
Smaller Bank & Building Societies
There are also non-major banks that offer commercial lending, in some cases, they will go to much higher LVR’s than the banks but their rates and fees aren’t always as competitive.
The added policy flexibility, and alternate ways these smaller banks will consider income makes them a good option if you haven’t got your tax returns up to date.
- Adelaide Bank
- Auswide Bank
- Bank of Melbourne
- Bendigo Bank
- BCU Bank
- Bank Australia
- ING Direct
- IMB Bank
- Suncorp Bank
- St George Bank
- Macquarie Bank
- ME Bank
Then further down the line are specialty lenders. These lenders look at the risker business that doesn’t always fit within the bank’s credit policies, for example, if you are looking for low doc and lease doc options these are the lenders to consider.
These specialty lenders provide options for property developers, who might be looking for no pre-sale finance.
The downside to that is they can sometimes cost more, as this type of lending involves more risk to the lender.
- AFM Mortgages
- Crown and Gleeson
- Pepper Money
- Paramount Mortgages
- Judo Capital
- Liberty Financial
- La Trobe Financial
- GPS Investment
- MKM Capital
- Union Fidelity Capital
These private lenders have products more suited to short term, 3 to 6-month lending and charge a % interest per month (instead of a % per annum).
Step #2: Put your best foot forward
As I have mentioned, the method that banks will use to review commercial property loans is extremely complicated because every applicant and security property is unique.
So determining which lender is right for you really comes down to what you are wanting to achieve, and matching that outcome with a bank or lender that specialises in that market niche.
Critically with commercial lending, you don’t want to just fill out a banks application form and email your paperwork.
You want to be able to show the strengths of your application, your present situation and show why the bank should give you the money.
We do this using our Credit Memo, that highlights:
- ✅ A Deal Summary
- ✅ Overview of security property, the location and why its a good security
- ✅ Overview of income, and the servicing position
- ✅ Overview of the sponsor, and background of recent projects and investment history
- ✅ Key People involved with the transaction, your lawyer, accountant and other team members
- ✅ Valuation, Financials and other supporting documentation
Including all of this information can present a stronger case to the bank, and mitigate any concerns their credit team might have around the security property and your ability to repay the loan.
Step #3: Get a sharper interest rate
All of the lenders across Australia have different costs of funds depending on where they obtain the money they lend out. For this reason, the larger lenders who have lower risk appetites generally have lower rates.
Add to this most of these lenders have a risk matrix which they use to quote interest rates on larger transactions, which takes into consideration:
- Security property:
- Location, suburb & area
- Condition and appeal
- State of surrounding market, competition
- Economic conditions that may affect property
- Sponsor / Loan Guarantor:
- Level of Interest cover, and ability to pay the loan back
- Loan to Value Ratio
- Net asset position
- Previous experience, and track record
- The team, and other people involved in the transaction
- Lease/holding income:
- Average Lease Term (WALE)
- Tenants details, and their financial capacity
- Their industry sector, and how this could affect rental
As I mentioned, commercial property loans are a bit more complicated than regular home loans which the only factor in LVR, loan size and loan amount.
If you are wanting to know which lender will offer you a low interest, call us on 1300 088 065 or get in touch online, and one of our Commercial Mortgage Brokers will call you back.
Step #4: Fees and charges
With the average commercial loan being over $1,000,000 (according to Realcommercial) it is also worth considering the fees and charges associated with setting up your lending.
Bank Bill Business Loan
Variable Business Loan
Variable Commercial Loan
Commercial Loan Product
Simple Commercial Loan
Minimum Loan Amount
Interest Rate (P.A)
Monthly or Quarterly
Monthly or Quarterly
Monthly or Quarterly
Can be capitalised
Can be capitalised
Up to 5 years
Up to 20 years
Up to 25 years
Up to 3 years
Up to 12 Months
Deferred Establishment Fee
Up to 2% if the loan is repaid within 3 years
|Documentation + Valuation fees|
Step #5: Other questions to consider
As with residential lending, in commercial, you can choose from fixed or variable rates.
The only difference is these are sometimes referred to as fixed or floating rates.
Fixed rate commercial loans are for those who are wanting certainty and might be a bit more risk-averse. If you want to remove any volatility from your interest costs, and are comfortable with the current rates you should consider fixed.
On the other hand, if you are comfortable with a little bit of volatility and want to be able to make additional repayments to your loan, a floating or variable rate commercial loan could be the way.
If you are doing a property development, or construction project you will need to use a variable rate loan.
Why do fixed rates have an early repayment cost?
Fixed rates commercial loans are a contract between you, the borrower and your bank.
And while they give you the certainty of repayment for that set period, they also give your bank certainty about the interest repayments they will receive over the fixed rate term. This lets the bank make hedging and funding arrangements to match.
In making these hedging and funding arrangements, the bank will incur interest costs. If you as the borrower repay some, or all of your fixed rate early or want to switch before the end of the fixed term the bank will need to change the funding armaments.
For this reason, the bank will charge you an Early Repayment Cost to recover the banks ‘reasonable estimate’ of the costs in changing the arrangements.
Case Study: Fixed Rate Break Costs
Shaun takes out a 2 year fixed rate loan of $500,000 at an interest rate of 7%. One year later, Shaun decides to fully repay the loan, and at that time the interest rates in the market are 5%. Based on the table below, Shaun will need to pay roughly $9785 ($1957 per $500k early repayment) for breaking the fixed rate.
Read More: Fixed rates are broken down
Chapter 3: Product Features
In this section, I’m going to show you some of the features of commercial property loans.
First I’ll teach you the basic features.
Then I’ll show you the quickest (and EASIEST) way to find the right loan features for you.
Commercial property loan features
Unlike regular home loans, commercial loans only have really basic features.
- ✅ Entities: Individuals, trusts, companies or self-managed superannuation funds (SMSF) are fine
- ✅ Loan term: Up to 25 years for commercial security (depends on lease term)
- ✅ Interest Only Period: Up to 10 years is acceptable (depends on lease term)
- ✅ Extra repayments: Available on variable facilities
- ☑️ Redraw: Sometimes available, depends on the lender
- ☑️ Cash Out: Available, depends on the purpose
- ☑️ Capitalised Interest: Available, depends on the purpose
- ⛔️ Internet Banking: Mostly available, depends on the lender
- ⛔️ Offset: Not generally available, depends on the lender
Different lenders have different target markets, so their product features will ultimately depend on this. For example, lenders who specialise in development and construction finance generally have products that have limited features, and in some cases do not even offer internet banking as they aren’t really important for this sector.
On the other hand, business owners who want access to transactional and credit card access need to have internet banking access so this feature becomes more important.
Will I need to sign a general security agreement?
When applying for a commercial property loan the bank might need you to sign a General Security Agreement, or GSA.
The GSA is a form of security, in addition to the property the bank will take that gives them security over all the assets owned by a person or company which acts as a guarantor to the loan.
According to Invoiceex, GSAs replaced Fixed and Floating Charges or Debentures when the Personal Property Securities Act 2009 (‘PPSA’) came into force. When entering into a GSA with your bank or any lender, you or your company will often be asked to provide security over all of your present and after-acquired property, meaning the bank will have security over everything you own now and everything you will own in the future. A bank could, for example, require a GSA from you or your company to secure loan monies advanced by the bank.
Provided you have sufficient equity in the security property your mortgage broker could negotiate not needing the GSA.
Other items that can help you mitigate the need for a GSA include:
- ✅ You are purchasing a standard commercial property – Generally speaking, only specialised commercial property will require a GSA in addition to the security.
- ✅ The total lending is under $1,000.000 – Provided lending is kept to under $1 million you should be able to mitigate the need of a GSA.
- ✅ You are in a strong financial position – If you can show the bank your last 2 to 3 years tax returns and financials, and you have a good credit file.
- ✅ Your business plan and experience – The banks assess this case by case, but if you have strong experience and a good business plan in place you can further mitigate the need for a GSA.
Call 1300 088 065 or contact us today to discuss your situation.
Can I get a commercial loan without moving my bank?
Most of the banks will make you switch all of your business banking, and lending as part of the deal if you are looking at buying your own commercial premises.
This can be frustrating if you do not want to move your existing accounts and even disruption to your clients and suppliers in needing to change bank accounts.
Fortunately, there are a few ways to switch lenders, without needing to move your business banking:
- ✅ Look at borrowing against a commercial, or residential property so there is no unsecured lending
- ✅ See if it’s possible to reduce the unsecured lending to be below $1,000,000
- ✅ Get your mortgage broker to negotiate the annual review requirement to be removed
- ✅ Look at other non-bank lenders who do not have this requirement
Please give us a call on 1300 088 065 or do a free assessment online so we can help you find a lender that doesn’t need yo auto switch your business banking.
Chapter 4: Choosing a Lender
In this chapter, we’re going to deep dive into my favourite part of commercial lending: “The HG Process”.
Why is this my favourite?
Because I’ve used this technique to negotiate hundreds of thousands in savings for clients again and again.
I’ve also seen lots of other people use the HG process to get similar results.
So without further ado, let’s get started…
What is the regular process of getting a commercial loan?
As you have seen, getting a commercial loan involves a few more steps than when you are applying for a regular home loan.
In commercial lending, there is much more time spent upfront working on the credit proposal and memo before it even goes to a banks credit team.
Either way, if your mortgage broker has done a good job they will receive 2-3 offers from banks.
Let’s use this case study of a client who recently bought a set of retail shops…
All in Rate
Bank 3 (clients existing bank)
Using ’The HG Process’ we went back to all of the banks, provided them feedback with where they were sitting compared to the other lenders and one last opportunity to sharpen their rates.
Time to give the banks one last round…
|Bank||LVR||Establishment Fee||Term||All in Rate|
|Bank 1||55%||0.40%||2.5 years||3.95%|
|Bank 2||55%||0.30%||3 years||3.80%|
|Bank 3 (clients existing bank)||50%||0.50%||3 years||4.00%|
As you can see, bank 2 was the clear winner.
And you know the shocking part?
Bank 3 was the client’s original bank!
They were the most expensive bank, which was going to provide a smaller amount of leverage!
But what difference does 0.50% make?
(That’s the difference from the original Bank 3 offer of 4.30% and the final offer of bank 2 at 3.80%)
This was a $12,000,000 facility.
So that extra 0.50% equates to $60,000 per year or $180,000 over 3 years.
Chapter 5: Annual Reviews
Now its time for some advanced tips and strategies.
In this chapter, you’ll learn why annual reviews matter, and ways to find lenders who do not require them.
Why do the banks need annual reviews?
With commercial lending, unfortunately just making your loan repayments on time isn’t enough.
On larger loans, the lenders will need regular access to your profit and loss to make sure you are in a strong enough position to continue to repay the loan – from quarterly reviews of BAS, all the way to ongoing facility monitoring.
The situation most lenders want to complete annual reviews on include when:
- ⛔️ Lending is over $2,000,000
- ⛔️ There are unsecured facilities
- ⛔️ There are specialty properties being used as security
- ⛔️ The LVR is high, or outside regular parameters
- ⛔️ Your repayments have fallen behind
In most cases, the lenders will want to see your financials, including profit and loss and balance sheet as well as a cash flow forecast.
We have also seen cases where the bank will want to revalue your security property.
And worst case, if the valuation comes in lower the bank can use this as an excuse to say your commercial property is higher risk and increase the margin on your loan!
What lenders do not require annual reviews?
If annual reviews are an issue for you, let our team know and we can work with a lender that doesn’t require them.
Many of the smaller lenders and some specialty lenders who do commercial lending on a 15, 20 or 25-year loan term do not require annual reviews.
If you would like more information, call us on 1300 088 065 or leave your details and our brokers will give you a callback.
Chapter 6: Mortgage Broker or Bank
Commercial property lending is a lot more complicated than residential lending. This is further complicated by banks not publishing their interest rates and constantly changing their lending policies.
This is one of the many reasons high net worth investors deal with our specialist commercial mortgage brokers when purchasing an investment property.
Should I use a mortgage broker?
Being one of Australia’s top Commercial Mortgage Brokers we see some of the best rates on offer.
(The kind that banks do not openly advertise)
We help our clients by allowing them to leverage our:
- ✅ Highly Experienced: Having helped hundreds of commercial property investors, and developers across Australia and lent over $1 billion we can help guide you through the process. We are ranked in Australia’s Top 10 Commercial Mortgage Brokers.
- ✅ Commercial Specialists: Our Mortgage Brokers are highly specialised commercial lending experts, having worked in the bank’s credit departments we understand the type of finance that will get you the best result.
- ✅ Deep Industry Relationships: Having worked in the industry for over 10 years, we have deep industry relationships, from the Heads of Banking in the major banks to individual credit managers who are making the decisions on your application. Knowing the right person in the bank can make a world of difference to your application.
- ✅ Sharp Pricing: Dealing with commercial lending scenarios every day we understand the current market, and when a loan is s submitted to a bank by a broker the bank knows they need to be competitive to get the deal.
- ✅ Lending Policies that are Flexible: As we have detailed above, we have access to 30+ commercial and specialty lenders, each with different risk appetites and funding sources. This ultimately provides you with funding from different lenders, meaning less restrictive terms.
Won’t I get a better deal going directly to the bank?
You might be surprised to hear, but we will be able to negotiate a cheaper deal with your bank than if you went to them directly.
Commercial Relationship Managers are remunerated on portfolio growth and their return on equity.
Put another way, in commercial lending the bankers are focused solely on the bank’s profit.
What this means for you, is that you can miss out when you deal with the Commercial Banker directly.
If for example, you are in a challenging situation or looking for a higher LVR – they can use this as an excuse to overcharge you.
Equally, because the industry is so opaque, its difficult to know what the bank’s competitors are charging so often your bank will charge as much as they can…
When have they ever told you a competitor has a better interest rate?
How does a commercial mortgage broker help?
In the first instance, we will have a chat to understand your situation and if we are a good fit.
- ✅ Once we have all your documentation and have a good understanding of what you are wanting to achieve we can then negotiate with our panel of lenders to see who will be in the best position to provide the best terms, at the best interest rates.
- ✅ We will collate the different bank’s responses and provide you with the indicative terms, comparison to choose the best lender and recommended an option to move forward with.
- ✅ Using ‘The HG Process’ we will approach the banks for a final round offer, showing them where their offer sits in the market and use this to negotiate further reductions in their margin and movement with their LVR and term.
- ✅ At this point, we can instruct a valuation and get that process moving, and we can speak with your accountant and solicitor if required.
- ✅ We will follow the bank through to formal approval, instruct loan contracts be issued and assist with getting these documents signed for settlement
How much do commercial mortgage brokers cost?
While some mortgage brokers charge a mandate fee, we do not charge any fees if you are borrowing over $250,000 and keep the mortgage for at least 2 years.
Similar to our Residential Mortgage Brokers, we are paid commissions by the bank to settle your commercial loan.
If you would like to discuss your commercial loan today, get in touch today.
How to apply for a commercial property loan?
Are you thinking about buying a commercial investment property? Talk to our expert mortgage brokers about your lending requirements.
Feel free to call us on 1300 088 065 or get in touch online and one of our mortgage brokers will give you a call to discuss.