Types Of Commercial Property Loans Available In Australia
Choosing the right commercial property loan starts with knowing your options. While major corporations can access tailored corporate lending, most other Australian businesses looking to fund property acquisitions or developments rely on commercial property loans.
For small-to-medium enterprises, property investors, and developers, choosing the right loan structure can directly impact long-term growth.
If you’ve read our recent post on how commercial property loans work, you already understand the basics. Now it’s time to look at the specific types of loans available and how each one fits the different stages of your business or investment strategy.
Main Types Of Commercial Property Loans 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:
Longer terms of up to 15 years are available, structured repayments are possible, and there are potential tax benefits if the property is income-producing.
- 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’s often used to raise capital for expansion, renovations, or equipment purchases.
- Advantages:
Borrowers have access to capital without having to sell assets, there is greater flexibility in usage, and there is the potential for favourable terms if the underlying asset is strong.
- Disadvantages
There is increased risk if the business struggles, and the asset used as security is at stake if repayments aren’t met.
- 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:
Detailed project plans are required, borrowers have to endure much more scrutiny, and there are stricter conditions around valuation and cost forecasting.
- Low-Doc And No-Doc Commercial Loans
Low-doc or no-doc loans are ideal for self-employed borrowers or investors who might not have traditional financial documents on hand. They rely on alternative verification methods such as business activity statements or declarations of income.
- Advantages:
There is often a faster approval process and less paperwork, providing an option for those with non-standard financials.
- Disadvantages:
These loans typically have higher interest rates and lower LVRs, and there is more risk assumed by the lender, which can impact borrowing capacity.
- 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 provides fast access to capital and is useful for managing tight timelines in property transactions, 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.
Matching The Right Loan To Your Business Goals
Choosing the right type of commercial loan depends heavily on your objectives and current financial position.
If you plan on occupying a property long-term, your business might be best served by a standard commercial loan with stable repayments. On the other hand, if you’re a developer building a set of industrial units, you will need a construction loan with stage-based funding.
If cash flow is tight or traditional documentation isn’t available, then a low-doc or business equity loan can fill the gap but at the cost of higher interest. Bridging finance, the other hand, might be ideal when timing is tight and long-term funding isn’t yet locked in.
Each option comes with different eligibility criteria, risks, and strategic implications. Before locking in a loan, it's important to weigh up your current needs against future plans, assess your risk tolerance, and be honest about the documentation you can provide.
Do you need guidance choosing the right commercial property loan for your investment or development plans? Contact Mortgage Providers for expert support tailored to your strategy.