Thinktank Commercial Property Finance CEO Jonathan Street says commercial loans are not that dissimilar from residential mortgages.
“There’s not a huge amount of difference when you break it down. It’s the same application form and information for getting a commercial property loan and loan size up to $2 or $3 million,” he says.
“But it can be complicated, depending on the bank or broker that you use.”
Jonathan explains that because it involves a business – which is less cut and dry than personal earnings capacity –ownership structures, involvement of trusts, rental agreements and so forth need to be factored in.
“[As such, the] loan approval process can be a little bit longer on average,” he says.
Possibly the most important difference is that lenders will generally only lend a lower proportion of a commercial property’s value than that of a residential property.
“Typically, LVRs (loan-to-value rations) are lower than for residential property. We typically go up to 75 per cent,” Jonathan says.
“Also, serviceability is important, so [borrowers] have got to make sure they’ve got enough income from the business and other sources of income.”
It’s also worth noting that some types of commercial property are deemed riskier than others. On these riskier property types, lenders may only be willing to lend a smaller amount of money, charge a higher interest rate or decline the application altogether.
“There are some specialist property types that lenders won’t be happy to lend against,” Jonathan says.
“For example, an old service station turned into a car wash site, because potential for contamination from the former usage can be a problem.”