Commercial property Finance

Investing in Commercial Property Tips

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Commercial Loans: Key Factors You Need to Know Before Purchasing Property for Your Business

Finding the right commercial loan can feel overwhelming, especially when you're looking to purchase commercial property for your business or investment. The process can vary significantly depending on the type of property, your business structure, and your financial profile. Understanding the key factors can help you make an informed decision and secure the right loan for your needs.

💡 Key Points to Consider When Purchasing Commercial Property

When applying for a commercial loan, here are some general factors to keep in mind:

Loan-to-Value Ratio (LVR)

The LVR represents the percentage of the property’s value that a bank is willing to lend you. The LVR can vary depending on the type of property and its security.

• Typical LVR Range: Most banks offer an LVR of 65% to 70%. However, a few banks may approve up to 80% LVR, depending on the type of property and the associated risks.

Interest Rates

Interest rates on commercial loans can vary significantly between banks. Several factors influence the interest rate you will be offered, including:

• LVR: Higher LVRs can result in higher interest rates due to increased risk.

• Loan Amount: Loans below $1.0 million typically have different rates than loans above this threshold.

• Applicant’s Risk Profile: Your total assets, liabilities, industry (based on your ANZSIC code), and creditworthiness will all impact the interest rate.

Application Fees and Additional Costs

• Application Fees: Most banks charge an application fee for commercial loans. Some banks offer fee waivers, so it’s important to shop around for the best deal.

• Valuation Report: The cost of the valuation report for the commercial property is generally borne by the purchaser.

• Monthly Fees: Commercial loans often come with monthly fees, which can vary depending on the bank and the type of loan. Always clarify these before proceeding.

Offset Accounts

Generally, most banks do not offer offset accounts with commercial loans. However, a few smaller banks may provide 100% offset accounts, so it’s worth inquiring if this feature is important to you.

Loan Terms and Conditions

• Loan Terms: Commercial loan terms can range from 15 to 30 years, depending on the lender. Typically, a 5-year interest-only period is offered, after which principal repayments begin.

• Annual Reviews: For loans under $1.5 million, annual reviews are typically not required. However, loans over $1.5 million will be subject to an annual review. This process involves updating your financial information to ensure your business is still meeting the agreed-upon terms.

• “Set and Forget” Loans: A few smaller banks offer commercial loans over $1.5 million with no annual reviews, providing greater peace of mind for business owners. As one of my clients put it: “No more annoying questions from the bank – I can just focus on running my business.”

Types of Commercial Loans

There are several types of commercial loans, each suited for different financial situations:

Full Documentation Loans

• This type of loan requires you to provide full personal information, including assets, liabilities, and income streams. While it can involve a lot of paperwork, it’s often the standard option for most borrowers.

Low Documentation (Low Doc) Loans

• If you don’t have the time or resources to provide full financial documentation, some banks offer low-doc loans. These typically require minimal documentation, such as BAS statements or an accountant’s letter.

Lease Doc Loans

• For businesses with complex structures, some banks offer loans based on the income generated from an arm’s-length lease. This type of loan is popular with businesses that prefer not to submit extensive financial paperwork.

No Documentation (No Doc) Loans

• These loans are available for short-term periods, typically up to 3 years. They are designed for businesses that need to act quickly on purchasing property, but they come with higher interest rates and lower LVRs.

Commercial Loan Options

If you're considering purchasing commercial property or refinancing your business loans, here are some options to explore:

• Purchase a Business: If you're looking to buy a business, a commercial loan can provide the capital you need.

• Working Capital Loans: If your business needs working capital to cover day-to-day expenses, a commercial loan can provide the necessary funds.

• Refinancing: You can refinance your existing business loans to secure a better deal or to consolidate debt.

• Commercial Property Purchase: Commercial loans can help you buy property for investment or owner-occupied use.

• Invoice Financing: Known as debtor financing, this allows you to access funds based on outstanding invoices.

Why Work with a Broker?

When you're considering a commercial loan, it’s highly recommended to work with a broker instead of going directly to the bank. Here’s why:

• Variety of Options: Your bank only offers its loan products, which may not be the best fit for your needs. A broker has access to a wide range of loan products from multiple banks.

• Tailored Advice: Brokers can provide personalized advice and help you navigate complex commercial loan options to find the best solution for your business.

Commercial Loans

If you’re planning to purchase commercial property, buy a business, or refinance your commercial loans, I can help guide you through your options. As an experienced broker, I can provide expert advice and help you choose the right loan product for your unique situation.

📞 Contact Me for Commercial Loan Assistance

If you’re ready to explore your commercial loan options or have any questions about the loan process, don’t hesitate to reach out. I’m always happy to help and provide the guidance you need to make the best financial decisions for your business.

Simon Bowler, Dip, FSMB & Fin
Mortgage Choice in Northcote