What is a COMMERCIAL LEASE doc loan?

With a commercial lease doc loan, your debt servicing relies on the rental income and strength of the tenant, rather than your personal strength or income. Think of it like a low doc commercial loan.

Feature of a commercial lease doc loan:

- Borrow up to 70% of the property value.

- No pay slips, tax returns, bank statements, BAS or financial statements are required (as it's all about the lease).

- The security must be a commercial property.

- The lease must have at least 12 months remaining.

- You can't be the tenant, it must be another entity, and the tenant needs to be strong.

- The lease income must cover the interest on your loan, and each lender has a different amount it must be covered by.

Which lenders offer commercial lease doc loans?

- Westpac is great in this space.

- But there are some great non-bank lenders that can work quickly in this space, too like Liberty.

How will the lender assess the commercial lease income?

- The financial strength of the tenant.

- The remaining term of the lease (must be >12 months).

- The interest cover ratio will vary from lender to lender, so speak to your broker.

What is the interest cover ratio & why does it matter?

- This is the number of times the lease income will cover the interest repayments on your loan.

- As an example, if you applied for a $1,000,000 loan at an interest rate of 6%, then the lender would need to see $60,000 in net rent income for you to qualify for a lease doc loan (plus an additional rate buffer each lender may apply).

- If you were receiving $120,000 in rent income from the property, then you would have 2x interest cover because you could pay the interest twice over.

- Many lenders need 1.2x to 1.5x interest cover to approve a loan. However, this will vary if you had a very strong tenant and the property was in a good location.

What if I don't have a signed lease already in place?

- If the lease isn't in place, you can get pre-approved on the condition there will be a satisfactory tenant / lease, if the deal was strong enough (but this is not ideal).

- Lenders usually require a fully executed lease and a bond paid before loan approval.

What properties are acceptable for a lease doc loan?

- Standard commercial (retail, industrial, office or warehouse),

- located in a major metro or regional area.

- Owner occupied residential properties aren’t considered.

- A lease to your own business doesn’t count as income evidence.

- A lease to a family member’s business or to a related business entity also does not count.

What if I want to lease the property to a family member?

- If you are leasing the property to a related party then you should consider a commercial low doc loan instead.

Are you looking for a Finance Broker that can help you?

- Give Loan Market South West Sydney a call.

Matthew Stack - 0423 237 242

#commercialfinance#commercialproperty #commercialleasedoc #leasedoc #lowdoc #commercialloan #sme #leasedoc #mortgagebroker #financebroker #finance