Purchasing business premises
Buying premises for your own business to occupy, such as an office, warehouse, factory or retail property.
Business & Commercial
Commercial Property Finance
Commercial property finance can be used to purchase or refinance offices, warehouses, industrial property, retail premises and other business-use property. The right structure depends on the property, borrower, cash flow, loan-to-value ratio and lender appetite.
Last reviewed
What is commercial property finance?
Commercial property finance is lending used to purchase, refinance or otherwise fund property that is primarily used for commercial or business purposes.
This can include offices, warehouses, factories, industrial units, retail premises, medical suites and a wide range of other commercial property types.
Commercial property lending can be structured very differently from a standard residential mortgage. Loan terms, interest rates, fees, valuation requirements, loan-to-value ratios and documentation can vary substantially between lenders.
What can commercial property finance be used for?
Commercial property lending can support a range of transactions.
Commercial investment property
Purchasing a commercial property that is leased or intended to be leased to another business.
Refinancing existing commercial debt
Reviewing an existing commercial property loan to improve pricing, restructure debt or change lenders.
Releasing equity
Accessing available commercial property equity for approved business or investment purposes, subject to lender policy.
Property improvements
Funding fit-outs, upgrades or other approved property-related works.
Portfolio restructuring
Restructuring lending across one or more commercial properties to improve flexibility or support future transactions.
Owner-occupied or commercial investment property?
The way the property is used can significantly affect how the lender assesses the transaction.
Owner-occupied commercial property
The borrower or related business operates from the property. The lender may place greater emphasis on the financial strength and cash flow of the operating business.
Commercial investment property
The property is leased to another business. The lender may place greater emphasis on lease income, tenant strength, lease term and the quality of the property.
How much can you borrow?
There is no single loan-to-value ratio that applies to all commercial property transactions.
The amount available can depend on the type of property, location, borrower strength, lease position, loan purpose and lender appetite.
Some lenders may be comfortable with higher loan-to-value ratios for strong, mainstream properties and borrowers, while specialist or unusual properties may require a larger equity contribution.
What affects the loan-to-value ratio?
Commercial property LVRs can vary materially between transactions.
Property type
Standard offices, warehouses and industrial units may be treated differently from specialised or purpose-built properties.
Location
Properties in stronger or more liquid markets may attract different lending appetite from properties in smaller or specialised markets.
Borrower strength
The financial position, experience and cash flow of the borrower can influence the amount a lender is willing to provide.
Lease quality
For investment property, tenant quality, lease term and rental income can affect the lender's assessment.
Loan purpose
A straightforward purchase or refinance may be treated differently from equity release, development or another higher-risk purpose.
Lender appetite
Different lenders can apply different maximum LVRs to the same property.
How do lenders assess commercial property serviceability?
Commercial property serviceability can be assessed in different ways depending on whether the property is owner-occupied or investment-focused.
For owner-occupied property, the lender may rely heavily on business earnings and cash flow to demonstrate the ability to service the debt.
For commercial investment property, lease income and the strength of the tenant may form an important part of the assessment, although the borrower's wider financial position can still be relevant.
What financial information might be required?
Commercial property applications can require more information than a standard home loan.
Business financial statements
Profit and loss statements and balance sheets may be required to demonstrate business performance.
Tax returns
Business and personal tax returns may be requested depending on the transaction.
Management accounts
Recent management accounts can help demonstrate current-year trading performance.
Lease information
Commercial investment property may require copies of leases, rental schedules or tenancy information.
Bank statements
Business or personal statements may be reviewed to confirm cash flow and account conduct.
Property documentation
Contracts, rates notices, tenancy documents and other property information may form part of the application.
Commercial property valuations
Commercial property valuations are often more detailed than residential valuations and can involve additional cost and time.
The valuer may consider the property's market value, rental income, lease terms, comparable transactions, location, building condition and the strength of the commercial market.
The lender will generally base its loan-to-value ratio on the valuation it accepts rather than simply on the purchase price.
Commercial loan terms can be different
Commercial property loans are not always structured like a standard 30-year residential mortgage.
Contracted loan term
The formal loan term may be shorter than the period over which repayments are calculated.
Amortisation period
Repayments may be calculated over a longer amortisation period even where the contracted facility term is shorter.
Interest-only periods
Interest-only structures may be available in some transactions, subject to lender policy.
Balloon or residual balance
Some facilities may leave an outstanding balance at the end of the term that needs to be repaid or refinanced.
Review requirements
Some commercial facilities may be reviewed periodically by the lender.
Refinancing risk
Where the loan term is shorter than the overall repayment period, the borrower may need to refinance or repay the remaining debt when the term ends.
Interest rate is only part of the cost
Commercial property finance should usually be compared on the complete facility rather than on interest rate alone.
A lender with a slightly lower rate may charge higher establishment, valuation, legal or ongoing facility fees. Another lender may offer greater flexibility, a longer term or more suitable repayment conditions.
The total expected cost and structure of the facility can therefore matter more than a small difference in headline rate.
Costs to compare
Commercial property finance can involve several separate cost components.
Interest
Compare the rate and the expected interest cost over the planned life of the facility.
Application and establishment fees
These may be fixed or calculated as a percentage of the loan.
Commercial valuation fee
The cost of a commercial valuation can vary depending on property type, size and complexity.
Lender legal fees
Commercial lenders may require the borrower to pay their legal and documentation costs.
Ongoing facility or review fees
Some commercial loans may include annual or periodic fees.
Early repayment costs
Break costs, minimum interest periods or discharge fees may apply depending on the facility.
Different commercial properties can be treated differently
Property type can have a major effect on lender appetite and available terms.
Office property
Traditional office accommodation may be widely accepted, subject to location, tenancy and market conditions.
Industrial and warehouse property
Industrial premises can be attractive security where there is strong market demand and broad alternative use.
Retail property
The lender may pay particular attention to tenant quality, lease terms and local retail conditions.
Medical and professional suites
Specialist-use property may be acceptable but can be assessed differently depending on location and alternative use.
Hospitality property
Hotels, pubs, restaurants and similar properties can involve more specialised lender assessment.
Special-purpose property
Childcare centres, service stations, aged-care property and other specialised assets may require lenders with specific appetite and experience.
Refinancing commercial property
Commercial property loans can be refinanced for many of the same reasons as residential loans, but the comparison can be more complex.
A refinance may be considered to review pricing, extend or restructure the loan term, release property equity, remove or change security, consolidate commercial debt or move to a lender with more suitable policy.
Existing break costs, discharge fees, new valuation costs and lender legal costs should be included when comparing the benefit of refinancing.
Why lender selection matters
Commercial property lending is heavily influenced by lender appetite.
Property appetite
Some lenders specialise in particular commercial property types while others avoid them.
Loan-to-value ratio
Maximum LVRs can vary substantially between lenders.
Serviceability
Different lenders may use different methods to assess business earnings, rental income and debt coverage.
Loan term
Available terms and amortisation periods can vary.
Interest-only availability
Some lenders may provide longer or more flexible interest-only periods than others.
Fees and pricing
Rates, establishment fees, valuation costs and ongoing fees can differ materially.
How I compare commercial property finance
My role as a mortgage and finance broker is to understand both the property and the transaction before comparing lenders.
That means reviewing the property type, loan-to-value ratio, business or rental cash flow, loan term, repayment structure, fees and lender appetite.
For commercial property, finding a lender that is comfortable with the transaction can be just as important as finding a competitive rate.
A typical commercial property finance journey
The exact process varies depending on the property and lender, but most transactions involve these stages.
- 1
Understand the transaction
Clarify the purchase or refinance amount, property type, loan purpose and required timing.
- 2
Review the financial position
Assess business financials, rental income, existing debt and available equity.
- 3
Structure the facility
Consider loan amount, loan-to-value ratio, repayment type, term and security.
- 4
Compare lenders
Identify lenders whose property appetite, pricing and credit policy suit the transaction.
- 5
Valuation
Arrange the commercial property valuation required by the selected lender.
- 6
Credit assessment
Provide financial and property documentation for formal lender assessment.
- 7
Approval and settlement
Review final conditions and costs before completing the property transaction or refinance.
Commercial property finance questions
How much can I borrow for a commercial property?
The amount available depends on property type, location, loan purpose, borrower strength, lease income, loan-to-value ratio and lender policy.
How much deposit do I need for commercial property?
There is no single deposit requirement. The equity contribution depends on the property, transaction and lender.
Can I finance a commercial property my business will occupy?
Yes. Owner-occupied commercial property finance is commonly available, subject to the business financial position and lender requirements.
Can I finance a leased commercial investment property?
Yes. The lender may consider lease income, tenant quality, lease term and the borrower's wider financial position.
Do I need a commercial valuation?
Usually. Commercial property valuations are generally required and can be more detailed than standard residential valuations.
How long are commercial property loan terms?
Commercial loan terms vary substantially. Some facilities may have shorter contracted terms than the repayment or amortisation period.
Can a commercial property loan be interest only?
Potentially. Interest-only periods may be available depending on the borrower, property, loan-to-value ratio and lender policy.
Can I refinance a commercial property loan?
Yes, subject to lender requirements. Refinancing may be considered to review pricing, restructure the term, release equity or change lenders.
Are commercial property loan rates higher than home loan rates?
Commercial property pricing is assessed differently from residential lending and depends on the property, borrower, loan structure and lender appetite.
What fees apply to commercial property finance?
Fees may include application, establishment, valuation, legal, ongoing facility, review and discharge costs depending on the lender and transaction.