Types Of Commercial Property Loans Available In Australia

Buying premises through your business involves different borrowing arrangements from buying through your super fund. Our brokers at Mortgage Providers explain which types of commercial loans may suit your purchase in Australia. We look at the income documents you can provide and explain the conditions attached to each offer, including when any remaining debt must be repaid.

If you are buying premises for your business, your trading income may support the repayments. If you are buying an investment property, a lender may assess the rent instead. The types of commercial loans available to you depend partly on how you will use the property and how you can demonstrate income.

Understand What the Loan Labels Describe

You may come across several names for the same loan. For example, a construction loan can also be fully documented: “construction” describes its purpose, while “full doc” describes the income evidence required. When comparing types of commercial real estate loans, check whether the name refers to the loan’s purpose, its documentation requirements or borrowing through an SMSF.

For a full doc commercial loan, lenders examine tax returns and financial statements. Our brokers check whether accounting expenses, such as depreciation, qualify as addbacks under the lender’s policy. Some lenders add depreciation back to your profit when calculating repayment capacity because it does not involve a cash payment in that period. Others apply different rules, so the same accounts can produce different borrowing limits.

Main Commercial Property Loan Types In Australia

Standard Commercial Property Loans

Standard commercial property loans are the most commonly used loans for purchasing commercial real estate such as office spaces, retail buildings, or warehouses. Borrowers typically include business owners who want to own their premises or investors acquiring income-generating property.

Advantages:

Terms of 15 years are common, with some lenders offering longer terms. Principal and interest repayments reduce the balance over time. Tax deductions may apply depending on how the borrowed funds are used.

Disadvantages:

This type of loan requires strong financials, typically has lower loan-to-value ratios (LVRs) than residential loans, and has a more involved approval process.

Business Equity Loans

This type of loan lets a business borrow against the value of its existing commercial property or other business assets. It is often used to raise capital for expansion, renovations, or equipment purchases.

Advantages:

You can raise money without selling the asset used as security. The lender will assess what you want to use the funds for, and the asset’s value and suitability as security can affect the terms offered.

Disadvantages:

If your business struggles to meet repayments, the lender may enforce its security over the asset.

Construction Loans

Construction loans are designed specifically for new commercial developments. They help fund the building of these projects in stages.

These loans are best suited to developers who want to build new warehouses, factories, or retail centres.

Advantages:

Interest-only repayments are available during construction, funds can be released in stages through drawdowns, and the terms are often tailored to match development timelines.

Disadvantages:

Lenders require detailed project plans and closely assess valuations and cost forecasts.

Low-Doc And No-Doc Commercial Loans

A low doc commercial loan may suit self-employed borrowers or investors who cannot supply standard income documents. Lenders may accept alternative evidence, such as business activity statements or an accountant’s declaration. If you are considering a no-doc product, we can explain what that lender still needs to assess before approving the loan.

Neither option removes the need to demonstrate how you will repay the borrowing.

Advantages:

Approval times depend on the lender and application.

Disadvantages:

Rates may be higher and LVR limits lower, depending on the lender and application.

When Rental Income Can Support a Lease Doc Loan

A lease doc commercial loan may suit a tenanted investment property if its rental income meets the lender’s repayment requirements, even when your personal income is difficult to document.

The lender’s required rental cover affects how much you can borrow. If assessed annual interest is $60,000 and the required cover is 1.25 times, acceptable annual rent must reach $75,000. Our brokers check the lender’s calculation and lease requirements before you commit. A tenant’s renewal option does not guarantee they will stay when the current lease expires.

Bridging Loans

Bridging loans offer short-term finance to bridge the gap between buying a new property and selling an existing one or while securing a long-term loan.

Advantages:

This option can help you manage tight property transaction deadlines, often with interest-only payments for the short term.

Disadvantages:

These loans usually come with higher interest rates, stricter repayment timelines, and limited terms of usually 6 to 12 months.

Buying Commercial Property Through Your SMSF

An SMSF commercial property loan allows your fund to borrow to acquire eligible property under a limited recourse borrowing arrangement. The property is held through a separate holding trust until the borrowing is repaid.

As ASIC’s Moneysmart guidance explains, your fund must meet loan repayments and property expenses, potentially while paying pensions. If employer contributions stop, rent alone may leave a shortfall.

Before signing a purchase contract, have your SMSF adviser and solicitor check the investment strategy and purchasing structure. Once they have reviewed the arrangement, we can identify lenders that will consider it and explain what they require.

Check When the Remaining Debt Becomes Due

The monthly repayment does not tell you whether the loan will be paid off when its term ends. A five-year facility calculated over a twenty-year repayment schedule leaves debt outstanding when the facility ends. Repaying it may require refinancing or selling.

When we explain the different types of commercial property finance, we look at:

• Whether annual reviews require updated accounts or valuations.
• Whether financial covenants impose ongoing conditions, such as maintaining specified rental cover.

An annual review can lead a lender to change your loan margin or require refinancing if your business no longer meets its criteria, even when repayments are up to date.

We also explain any charges for repaying early, including when you sell or refinance.

Matching The Right Loan To Your Business Goals

Tell us whether you intend to occupy the property, lease it to a tenant or develop it. We can then explain which lenders will consider the purchase and the income records they need.

Talk through your commercial loan options with Mortgage Providers today.

Frequently Asked Questions

What is a commercial loan?

It is finance for a business or investment purpose. A commercial property loan is secured against property such as a shop, office or warehouse. Other commercial lending can fund equipment or working capital.

Can I move from a low-doc loan to full doc later?

Possibly. You will need acceptable financial records and must meet the lender’s criteria at the time. Check whether changing products involves reassessment or refinancing costs.

Does a property valuation determine how much I can borrow?

It sets the value used to calculate the LVR, but does not determine approval alone. The lender also assesses repayment capacity and whether the property meets its security requirements.