Commercial Property Loan

 Commercial Property Loans

What Properties are eligible for a commercial property loan?

• - Block of units

• - Offices

• - Factories

• - Warehouses

• - Retail shops

• - Shops

• - Accommodation

• - Car Yards

• - Farms

• - Backpacker hostels

• - Aged care centres

• - Child care

• - Function centres

• - Petrol stations

• - Commercial property development

• - Pubs or restaurants

• - Supermarkets

• - Shopping centre

• - gyms etc.

• Specialised properties need a sizeable deposit to get approved.

What is the purpose of the commercial loan?

• 1. Investment: To buy a commercial property that will be leased.  This is lowest risk.

• 2. Owner-occupied:  Buy a commercial property to lease by your own business.

• 3. Working capital: business loan to fund the operations of your business.

• You cannot use a commercial property as security for a loan to fund a residential property purchase.

What are typical commercial property loan features?

• - Individuals, companies, trusts and SMSF.

• - 15 to 30 year loan terms in some cases.

• - 5 years interest only.

• - Both fixed and variable rate types.

• - Some products allow redraw on a case-by-case basis.  Not normally an offset account.

• - Lines of credit are available, however they usually attract higher rates.

• - Development finance can capitalise interest.

Do I need to put up my residential property as security for a commercial loan?

- Yes, in some cases, this is standard.  This can be negotiated if you have plenty of cash or equity.

Most lenders will tell you they're the market leader for your property.  They want the chance to assess the loan and first right of refusal.  Working out the right lender requires a lot of research and it's important to do it in a way that doesn't affect your credit rating.  Give me a call before you contact the lenders, and I'll do the research for you.

Pick the lender that focuses on your commercial property

You must present your application well

• A finance broker can add additional documents and explanations around purpose and the security to get the loan over the line.  We can negotiate rates to try and get a deal to service and can ask for lower fees to compete with another lender - that may not be able to even help you.  We can explain bad credit histories caused by suppliers disputes etc.

• - security type

• - security location

• - general condition of the property

• - use of the property

• - current property market

• - current lease on the property & strength of tenants

• - the size of your deposit

• - investing and management experience

Do I need annual reviews for a commercial property loan?

- Not usually for smaller commercial property loans.  But sometimes for tricker scenarios.

 Not really for small commercial property loans.

Most commonly done for:

- Deals above $2m.

- Unsecured loans or lines of credit.

- Non-standard commercial property loans.

- Any missed repayments or stress.

It usually includes a new profit and loss, balance sheet and cash flow forecast. They don't usually revalue the commercial property, but they sometimes do.  The outcome of this review may change the interest rate you pay.  Knowing this, it may be prudent to select a lender that doesn't do annual reviews.

Why use a finance broker?

• A commercial property finance broker needs to have experience, relationships within the commercial lending space and flexible lending options.  Lender policy changes all the time, so it's important to work with a finance broker that writes business in this space.

Will I get a better deal with a commercial property finance broker?

- Not always!  Be we do all the work in getting your loan set, and it doesn't cost you a thing.

What is the process?

Each lender tends to compete for a different type of security.  The trick is knowing which lender is actively looking for the kind of property you are looking to purchase.  

1. Standard commercial properties are easy to sell and represent low risk to the lenders.  These include:

2. Specialised commercial properties can be difficult to value or sell.  They represent more risk to the lender and require the right lender for approval.  These include:

Some commercial transactions let you buy the leasehold - such as a motel - without buying the physical property.  Mix use properties can sometimes have creative ways to assess.

Commercial property loans that are used for business or investment purposes are not regulated by the NCCP, meaning most commercial borrowers don't have the same protection as residential home buyers.

This is why the purpose of the loan becomes important!

Banks have a lot more freedom with their lending policies for commercial property loans.  This is why it's so important to have an experienced finance broker to help you navigate the lenders and different application approaches.

3 main types of income verification methods:

1. Low Doc: accountants letter, personal declaration and maybe a BAS.

2. Lease Doc: lease statements to show the lease covers the P&I repayments.

3. Prime: full financials.

4. Forecast: your accountant can show through a projection that this loan will allow your business to make more money, which can cover the loan.

While commercial loans need les proof you can afford the loan, each lender will need to be satisfied that your scenario does not represent high risk.

Every lender assess risk different for each of the above features.  It's important to work with a finance broker that can do the required research to find you the deal that suits your situation.

- Most lenders want a guarantee over your business assets and property.  This changes from lender to lender.

- If the property's lease can service the debt by itself, there are lenders that will use just the commercial property as security without a personal guarantee from the lenders.  This is getting rarer though, so expect a director's guarantee.  This is especially true if directors' income is needed to service the role.

How to choose a commercial property lender?

An experienced finance broker will be able to research the lenders which dominate your particular commercial property scenario.  I would recommend a different lender for a startup than a SMSF to a developer.  I much prefer to go away and research an option than be too forward over the phone.

You're more likely to get approved picking the right lender than chasing low rates.  Don't get me wrong, rates are important, but getting approved is the highest thing!

A good finance broker will know your strengths and weaknesses.  He will build your application with this in mind, knowing what the lender is focused on.  You need to send the application in the exact format the lender prefers.  More is sometimes less and less is sometimes more, depending on the commercial property lender.

This is something I can help you with.

Negotiate any push back from the lender

Negotiating a better rate

Banks with lower risk appetites tend to have lower interest rates.  They generally use a risk matrix which will take a few factors into consideration:

Wondering if a lender will approve your commercial property loan?  Give me a call on 0423 237 242 or matthew@mycommercialloans.com.au.  I'll come back to you same day.

It's highly complex with many factors to consider.  A usual application takes an extraordinary level of research to present you with a suitable solution. 

1. I'll call you to find out a little bit about your business.

2. Request documents.

3. Learn your income position.

4. Negotiate with lenders to see where the best fit is.

5. I'll come back to you with some indicative rates and a proposal of what the loan could look like.

6. I'll help you with the forms and send them to you for final approval and signature.

7. I'll then submit to lender and manage the process on your behalf from there.

8. I'll arrange a valuation after pre-approval is granted.

Ready to apply for a commercial property loan?

Talk to me directly about getting assessed.  Give me a call on 0423 237 242 or matthew@mycommercialloans.com.au.