Commercial Property Loan

Loans for standard & specialised commercial properties

How much can I borrow for a commercial property loan?

• Up to 80% of the property value for loans up to $1.5 million.
• Up to 75% of the property value for loans over $1.5 million.
• 70% of the property value for loans up to $5 million.
• Loans between $5 are assessed on a case-by-case basis.

Do you qualify for a commercial loan:

We can give you a free assessment of a commercial property loan.

Call Matthew on 0423 237 242

Interest rates and loan fees for commercial property loans work a little differently to standard residential property and usually can be negotiated.

What Security can be offered for a commercial property loan?

Standard commercial properties are the easiest type of security to attain a commercial property loan. Some examples include: factories, offices, warehouses, retail space, shop fronts and blocks of units or townhouses.

Standard securities are best as they have mass appeal and can be sold easily if you have trouble making repayments. Usually in a desirable location and zoned as residential, commercial, industrial or mixed use property.

Specialised commercial properties are harder to sell and value. For this reason a lender may not lend as much towards it, so expect to need a larger deposit. Think aged care facilities, back packer hostels, hotel, caravan parks, car yards, land subdivisions, petrol stations, commercial property developments, and some farms etc.

If the property can be used in a multiple different ways, then expect a more detailed evaluation and valuation, which may either help your deal get across the line or hurt your chances.

Acceptable Commercial property loan purposes

If your commercial property loan is used for business or investment reasons, then it is not regulated by the NCCP act. This means you'll likely have less protection as a home buyer in the residential real estate space.

The risk and purpose of your commercial property loan affects your loan assessment: Investments where you'll let the property out are lower risk; to occupy the commercial property yourself will attract a higher risk of default (as your business may fail), and commercial loans financing the day-to-day operations of your business are the highest risk.

The main thing to remember is that the most important thing is what the loan is used for. It's less about the commercial property you're securing the loan with than the reason you want the funds.

For example, most commercial lenders wouldn't approve a loan secured by a commercial property that is not used for a business reason, such as buying a residential property to live in (as this would be a NCCP loan).

Income servicing for commercial property loans

Commercial lending is less regulated than typical home loans, so there's many ways to assess income for the loan such as:

• Full doc: the most common and needs 2 years financial statements, 2 yeas company tax returns, 2 year personal tax returns for the directors (on the loan). You can add-back allowable expenses such as depreciation, interest and directors salaries.
• Lease doc: here the loan is assessed only on the rental income. Usually needs at least 2 years left on the lease and an interest cover ration of over 1.5 times. These are great options if your lease is a high yielding one or you have a larger deposit to make it work.
• Low doc: You'll need an accountants letter or 2 BAS or 6 months bank statements. It's best to speak to us first about what documents you have, so we can make a plan to present you in your best light.
• No doc: Yes, some lenders like Liberty can offer a shorter term loan based off a personal declaration.
• Forecasts: sometimes you can offer a profit and loss forecast proving this property loan will help you make more money than you are currently earning, and thus making it easier to pay off the loan. For example, if you buy a bigger premises and can service more clients etc. Harder to get across the line and should be prepared by your accountant.

Expect your lender to be vigilant in assessing your ability to repay the loan. In more complex deals, there will be a lot of back-and-forth with your lender and broker, so don't get discouraged...get a good broker.

Loan features for a commercial property loan

• Full doc: you can borrow the funds in the name of individuals, companies, trusts & SMSF. Trust structures are becoming more popular for these kinds of transactions.
• Term: 15 to 30 year loan terms offered. Some of the No Doc options have a 3 year loan term, however are only short term fixes so you can refinance later.
• Interest-only: Up to 5 years usually depending on the lender.
• Interest rate type: Variable or fixed up to 5 years.
• Additional repayments: Yes, on variable loans.
• Redraw: Yes, for the amounts you have paid over-and-above your monthly repayments.
• Line of credit (LOC): attract higher interest rates, but yes they are available.
• Capitalised interest: is used mainly for developments, land sub-division or with private lenders when used as a bridging facility.

A broker will know the lender to take you to as each lender is trying to attract specific property types and loan types. Give us a call to package your loan and show you comparisons. We don't charge a fee as we're paid by the lender. So why would you go it alone?

Loan Market Matthew Stack - 0423 237 242

General Security Agreements

Commercial property loans usually require a General Security Agreement (GSA) over the property and some business assets. If you have a large enough deposit we can argue against that with the lender on your behalf.

For example, if the lease income covers the loan by a certain multiple, then some lenders will just consider the commercial property as security without a personal guarantee from the directors. However, if you need directors income to service the loan, then you must have a directors guarantee.

Do I have to switch business banking facilities for my commercial loan?

It's so much easier if you do! It's usually part and parcel of being offered a commercial loan. Pick your battles and just go with it. However, if you have a compelling reason why you simply don't want to move your business banking facility then talk to us about it.

How to get a commercial property loan approved?

It's tough to explain this briefly as it's a complicated process as rates and lender appetites in the commercial property space aren't widely available. A good broker knows the lenders and has contacts within each organisation to guide them as to their likelihood of approving the loan.

ONE: Start with the right lender

Know which lender likes the type of finance you're looking for. As a commercial broker, we would recommend different banks for different deals, such as startup businesses, commercial property loans, corporate borrowers, SMSF loans, and development projects.

Your odds of success go up when you target lenders that like the kind of deal you're trying to get approved.

TWO: Your broker will present a stronger case than you

Highlight the strength of the application and why it fits the lenders policy. Give them no reason to reject it. Simply filling out the application and sending in the required documents is not enough to have the best chance of approval.

THREE: Know the commercial lenders concerns

• Provide extra information ahead of time to mitigate the risks of the deal.
• Improve your deposit to sweeten the deal.
• Don't fret about a slightly higher rate if it gets your deal across the line. For example, if the lender sees you have bad credit history, then know your rate will be higher.

How to get a lower interest rate?

This is a tough one. Each lender has their rate for a particular type of deal. Unless you're giving a great deposit and commercial security, this won't be altered by much - no matter ow good your broker is.

Some things that will improve your rate are: good property location, condition of property, future expectations of the commercial property market, the size of your deposit, longer lease length, and the strength of the tenants will all help improve your rate.

Give us a call on 0423 237 242 and we'll walk you through it.

Annual reviews for commercial property deals

Annual reviews aren't usually in place for smaller commercial deals sub $1.5 million. Annual reviews are more common where the commercial property loan is over $2,000,000, there are unsecured facilities, specialised commercial property as security, high LVR loans or you have shown you are struggling with repayments.

The lender will ask for new business financials and may even revalue the property every few years (at your cost). If the lender deems your position not as favorable now as when you entered the loan, your interest rate may go up as their perceived risk goes up.

Why use a mortgage broker?

Commercial property loans are highly complex and not to be lumped together with residential property investing. It's hard to find interest rates and fees, but mainly it's hard to know which lenders like which kinds of deals and borrowing structures.

Most people buying commercial property will use a broker for guidance and application execution. And when there is no fee to you, why would you go it alone? We know the lenders and have relationships within each bank. We can workshop scenarios and provide solutions. Give Matthew a call on 0423 272 242.

What does a commercial finance broker do?

We'll talk to you about your scenario and best ways to move forward.

Document collection.

Assessment of the deals merits.

Indicative offer from the lender to confirm the likely conditions of the loan. Once you accept the indicative offer, we'll arrange a valuation and submit a full loan application to the lender.

We'll talk with your solicitor & accountant to take most of the work burden off you.

Loan Market Matthew Stack

0423 237 242

matthew.stack@loanmarket.com.au

https://broker.loanmarket.com.au/matthew-stack/other-loans/commercial-loans/

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