A Beginner's Guide to Commercial Property Finance in Australia
Thinking of buying a commercial property? This guide explains the key differences from residential loans, what deposits you'll need, and how to get approved for commercial finance.
Buying a commercial property, whether it's an office for your team, a warehouse for your stock, or a retail space for your customers is a major milestone for any business. It's a move that can build long-term wealth and provide a stable foundation for growth.
However, financing a commercial property is a completely different process from getting a standard home loan. Lenders assess the risk differently, the deposit requirements are higher, and the loan structures are more complex.
This guide breaks down the essentials of commercial property finance in Australia.
Key Difference: Residential vs. Commercial Loans
Deposit (Loan-to-Value Ratio - LVR): While you can get a home loan with as little as a 5% deposit, for a commercial property, lenders will typically require a deposit of at least 20-30%. An LVR of 70% is common.
Loan Term: Commercial loan terms are often shorter than the standard 30-year home loan. Terms of 15-20 years are more typical.
Interest Rates: Rates on commercial loans are generally higher than residential rates to reflect the higher perceived risk.
Lender Assessment: The lender will assess not only your financial position but also the strength of the property itself, including its location, the quality of the tenant (if any), and the length of the lease.
What Lenders Look For in a Commercial Property Application
A Strong Deposit: As mentioned, 20-30% is the standard starting point.
A Healthy Business or Income Position: If you plan to occupy the property, the lender will want to see that your business is profitable and can comfortably afford the repayments. If you are an investor, they will assess your personal financial strength and the rental income from the property.
A Strong Lease (for investors): A property with a reliable, long-term tenant (e.g., a 5+ year lease to a national brand) is seen as a much lower risk than a vacant property.
Experience: Lenders look favourably on buyers who have experience in business or property investing.
Common Types of Commercial Property Finance
Owner-Occupier Loan: For a business purchasing its own premises to operate from.
Investment Loan: For a buyer purchasing a property with the intention of leasing it out to a commercial tenant.
Low Doc Commercial Loan: For experienced business owners who may not have up-to-date financials but have a strong asset position and a solid explanation for their income.
Final Thoughts: Strategy is Everything
Financing a commercial property is a strategic financial decision that requires careful planning. The structure of your loan, the lender you choose, and the way your application is presented can have a huge impact on the outcome.
Because the market is so complex, a referral to a finance broker who specialises in commercial property is one of the smartest moves you can make. They have access to a wide range of banks and non-bank lenders and can negotiate on your behalf to secure the most favourable terms.
If you are considering purchasing or refinancing a commercial property, contact us. We can provide a confidential, no-obligation referral to a specialist who can guide you through the process.
