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If you're looking to buy a commercial property, there's a good chance you'll need to borrow a portion of the purchase price through a commercial property loan. But before you can buy those perfect new business premises you've got your eye on, you should be aware that commercial property loans are a very different beast to residential property loans. Read on to find out how you can choose the right commercial property loan for your business.
A commercial property loan provides the finance you need to purchase a commercial property. The amount you borrow earns interest at a fixed or variable rate and will need to be repaid in full before the completion of the loan term.
Lenders can offer funding to finance the purchase of a wide range of commercial properties, such as:
The commercial property you buy will most likely be one of the most important assets your business owns, so it's important to choose the right loan to finance your purchase.
Before we can look into the nitty-gritty of comparing loans, it's important to first think about the purpose of your loan. This is because the purpose of your loan will affect how lenders assess your application for finance:
100% confidential application
An unsecured business loan with online application and no upfront or early repayment fees.
There are several factors you should consider when choosing a commercial property loan, including:
By carefully considering the features and conditions of a range of commercial property loans, you'll be able to find the best finance solution for your needs.
Australian lenders view commercial property loans as a riskier investment than residential property, largely due to the fact that vacancy periods can be extensive. As a result, commercial property loans tend to have a few key differences when compared to their residential counterparts. Those differences include:
Each lender has its own tolerance for risk and its own lending policies. Combined with the fact that the type of commercial property finance needed can vary substantially from one borrower to the next, this means that many of the features of a commercial property loan can be up for negotiation.
This is clearly demonstrated by commercial property loan interest rates. Unlike residential home loan interest rates, which are widely publicised on lenders' websites and in marketing material, commercial property loan rates are rarely published anywhere.
Why? Because there are several factors that influence the rate which will apply to your loan, including:
When you apply for a commercial property loan, the lender will consider all of the above factors when determining whether to approve you for a loan, and when calculating the interest rate that will apply.
The next factor to consider is the property you will offer as security for your loan. This can have a big impact on the amount a lender will allow you to borrow as different security properties come with different risks attached.
Standard commercial properties are usually an ideal type of security for your loan. These are properties that have a broad appeal to buyers, are in a good location and are zoned appropriately for their desired use. Standard properties include:
However, depending on your circumstances you may have to offer a specialised commercial property as security. These include:
If you list a specialised property as security for your loan, your lender will need to perform a detailed valuation of the property and also assess the risks associated with that property. As a result, you'll typically only be able to qualify for a much lower LVR.
Offering your own home as collateral may be an option to help you access a higher LVR and a better interest rate. However, this approach does increase your exposure to risk, so seek expert advice before determining whether it's the right option for you.
If you're considering a commercial loan, compare the options from Naritas Commercial Finance.
When you apply for a commercial property loan, the property you want to purchase will need to be professionally valued. A professional valuation is carried out by a qualified valuer and is an essential step to allow you to obtain the finance you need. Not only does it help you calculate whether the price you are paying is fair, but it also allows the lender to work out whether you can be expected to afford your loan repayments.
However, because a commercial property valuation is much more involved than the valuation of a residential property, the process costs more. You'll need to factor this additional cost into your calculations when working out the total cost of a loan.
Check out our guide to commercial property valuations for more details on how this process works.
Commercial property lending is far more complex than residential home loan lending, and making sense of the loan options and features available can be a confusing task. Different lenders also specialise in offering loans to suit different types of commercial property buyers – for example, while one lender might specialise in offering finance for start-up businesses, another may be able to offer better deals to a commercial property investor or a developer.
This is when a mortgage broker is your best friend. An experienced broker can use their knowledge of commercial property lending to help you decide which lender is most likely to offer a suitable finance solution. He or she can then assess your current financial situation and your borrowing requirements before helping you compare a wide variety of loans to find one that matches your unique needs.
Commercial property lending is a complex area, and the information and documentation you'll need to supply when applying for a loan vary depending on the lender you select, the type of property you want to buy and the amount you need to borrow.
However, as a general guide you will need to supply:
Your mortgage broker can help you prepare an application that addresses all the necessary criteria and gives you the best chance of approval. If your application is refused or approval is delayed, a broker can also help you work out what you can do to improve your chances of accessing the finance you need.
Finance sorted? Learn about commercial property insurance
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do you have a service to assist obtaining the best market rates on an office building–the loan would be in excess of 20 m.if so what are the fees ?? thanks
Hi Anthony,
Thanks for reaching out.
Here is a page where you can compare commercial loans and read tips when making a commercial property purchase.
Alternatively of course you may seek advice directly from an expert or a commercial mortgage broker as they are well-versed when it comes to liaising with banks and financial institutions, they could assist and give sound advice in finding the best loan to suit your plans for your commercial property.
Cheers,
Joanne