Commercial Property Loans

Commercial Property Loans

Commercial property loans are similar to most other home loans however the security (property) is what changes. Instead of the application being for a standard residential property, the application is for a commercial property.

There can be cases when there is a residential property and a commercial property being financed through a commercial property loan, however there is generally always going to be a commercial property involved.

Commercial property loans used for a business or investment are not regulated by the National Consumer Credit Protection Act (NCCP) which means borrowers do not have the same entitlements as a standard residential property home loan.

Many people see commercial property as a good investment opportunity, it is common for a self managed super fund (SMSF) to purchase a commercial property and of course, some businesses buy a commercial property to operate out of. Typically a commercial property is a more expensive property to get into due to the loan to value ratio (LVR) however the rental returns can be quite attractive.

Depending on the type of borrower, the application varies but the process is fairly similar to most other commercial property loan applications.

The one major difference for the consumer is that it’s difficult to find information about lenders and the interest rates available for commercial loans. There is more negotiation done in applying for finance with commercial property as each application is mostly treated as a case by case, the valuations are determined by the rental income the property produces and the loan to value ratio (LVR) of the property will determine what level of borrowing can be achieved.

Types of commercial property security include:

• Offices
• Retail space
• Large residential blocks
• Warehouses

If the commercial property loan falls outside of these type of securities, the lender will take another view on the risk profile to determine their appetite for that type of property. In addition to this, the borrower would generally need a larger deposit, have additional security and a healthy business / income to support an application for securities with more risk.

Examples of other niche securities lenders may consider are:

• Developers
• Franchises
• Childcare Centres
• Land
• Restaurants
• Hotels

Depending on the lender, they may or may not consider all types of security and their assessment / approval is based on their risk appetite.

The lender is also looking at the purpose of the loan, not just the security to assess the application. Things like owner occupier (running your own business out of the security) or investment only purposes (leasing to another business) plays a role in the risk assessment process.

Regarding the servicing and income assessment, due to the commercial lending space not being as regulated as residential lending, the lenders policy on documentation requirements varies and can be more flexible. In addition to your common lenders (banks and non-deposit institutions) there are private funders who may consider an application which falls outside the norm (i.e. high risk applications, start up businesses, etc.).

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