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Tips to finance a commercial property purchase

Adam Zuchetti
Adam Zuchetti
27 April 2017 1 minute readShare
Loan application form

For anyone looking to purchase a new commercial property, either for their own business to occupy or as an investment, here are some points to factor into your calculations about commercial property loans.

According to Thinktank Commercial Property Finance CEO Jonathan Street, commercial loans are not that dissimilar from residential mortgages. Although they aren’t quite identical either.

“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.

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“But it can be complicated, depending on the bank or broker that you use.”

Jonathan explains that is simply because there is a business involved, which is less cut and dry than personal earnings capacity, as well as differing ownership structures, involvement of trusts, rental agreements and so forth.

 

“[As such] loan approval process can be a little bit longer on average.”Loan application form

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,” says Jonathan.

“Also serviceability is important, so [borrowers] have got to make sure they’ve got enough income from the business and other sources of income.”

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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. For example, an old service station turned into a car wash site, because potential for contamination from the former usage can be a problem.”

Tips to finance a commercial property purchase
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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