Commercial property loans for business

Owning your premises is one of the best things a business can do for its balance sheet. It also opens up a source of funding that sits idle for most owners. Whether you’re buying a building, borrowing against one you already own, or bridging between the two, commercial property loans work a little differently from home-secured lending.

Three ways owners use commercial property loans

Buying premises. Stop paying rent and start building equity. Banks will fund many purchases, but private and specialist lenders step in when the timing is tight, the business is young, or the property is unusual.

Releasing equity. If your building has risen in value or the original loan is paid down, that equity can fund growth, stock, equipment or debt consolidation without selling anything.

Bridging a move. Buying new premises before the old ones sell is a classic bridging loan situation.

How commercial valuations differ

Residential valuers mostly compare recent sales of similar homes. Commercial valuers also look at income. That means the details of any lease matter a great deal.

Valuer looks at	Why it matters
The lease term and who the tenant is	A long lease to a sound tenant supports value
Rent compared with the market	Above-market rent may not be counted in full
Zoning and permitted use	It limits who could buy or rent the property
Building condition and age	Major repairs reduce value
Location and comparable sales	Commercial markets can be thin outside big centres

If you occupy the premises yourself, the valuer will often estimate what a tenant would pay. Expect a full valuation for larger loans, which can take a few days to arrange. Our guide on what a valuer checks explains how to prepare.

How much you might borrow

Commercial lenders usually lend a lower share of value than residential lenders, and the gap widens for specialised or regional property. If the figure falls short, adding a residential property as extra security is a common fix. So is a combination: a first mortgage over the commercial building plus a second mortgage over a home.

Owner-occupied or investment?

Lenders look at a building you trade from differently from one you rent out. With owner-occupied premises, the lender is relying on your business to keep paying, so it will usually want some sense of how the business is trading, even if only through recent bank statements. With a tenanted investment property, the rent is part of how the loan is serviced, so the lease, the tenant’s track record and any vacancy risk carry more weight. Mixed-use buildings, such as a shop with a flat upstairs, can sometimes be valued partly on residential terms, which may help. Tell us which applies, because it changes which lenders we approach first.

What to have ready

1. The property address and title details.
2. Any current lease, including rent, term and options.
3. A recent rates notice and, for strata property, levy details.
4. A statement for any existing loan over the property.
5. What the funds are for and how the loan will be repaid.
6. For a purchase: the contract of sale, settlement date and deposit details.

An illustrative example

An Adelaide printing business has leased the same factory for twelve years. The landlord offers to sell it to them for $1.6 million, but needs to settle within six weeks because of their own deadline. The bank likes the deal but can’t approve it in time. A private lender funds the purchase using the factory and the owners’ home as security for twelve months, and the business refinances to its bank once the bank’s full assessment is done. Illustrative only.

Costs and tax

Expect valuation, legal and establishment costs, and possibly stamp duty if you’re buying. Commercial property can carry GST implications on purchase and sale, so get your accountant’s advice before you sign a contract. On the loan, ask how interest is charged, whether there’s a fee to repay early, and what happens at the end of the term if you plan to refinance.

Risks

Commercial property can be harder to sell quickly. If the loan has a short term and your exit relies on a sale or refinance, allow extra time. Tenant changes, zoning issues or a falling local market can all affect what lenders will offer later. Keep the loan to a level you could still refinance if values softened.

Talk through your premises

Tell us about the building, any lease, what’s owed and what you need. There’s no credit check when you enquire, your details aren’t spread across the market, and a person who understands commercial lending will call you. Good, accurate details about the property mean a quicker, sharper answer. Start your enquiry.