Blog

May 05, 2019

Commercial Property Loans - The Basics

How Much Can I Borrow?

Unlike standard residential home loans, the pricing and lending policies for commercial property loans are rarely set in stone and many of the terms can be negotiated.

  • 100% of the property value using a guarantor to secure your loan.
  •  80% of the property value for loans up to $1,000,000. 
  • 75% of the property value for loans up to $2,000,000. 
  • 70% of the property value for loans up to $5,000,000. 
  • Commercial property loans from $5,000,000 to $50,000,000 are on a case by case basis.

The basics for a commercial property loan

Aside from the lender, the type of commercial property loan and nature of your security will have an affect on the amount that you can borrow:

  • If a residential property is used as security, you may be able to borrow 100% of its value.
  • Lease doc, low doc, and no doc loans will require a larger deposit.
  • Specialised security properties will require a larger deposit.

NO LENDER’S MORTGAGE INSURANCE ON COMMERCIAL LOANS

While residential borrowers are able to pay lender’s mortgage insurance to secure a home loan if they don’t have an 80% deposit, commercial borrowers don’t have that same luxury.

There ic no LMI in commercial lending – it doesn’t exist,

PRICING CAN VARY

While home loan rates are generally straightforward and you can select most rates right off the shelf, in commercial loans you’ll be assessed on a range of different criteria that could alter the interest rate you end up with.

Loan pricing can vary based on the security, the gearing level, the location of the business and the nature of the business,

Assessment is generally looked at differently to a home loan. Serviceability is a different calculation based on the interest cover, which looks at the surplus income after you’ve paid all your other expenses, compared to the debt repayments for the loan.

Again, that can factor into pricing as well.

HIGHER RATES AND FEES

Generally pay a higher interest rate for a commercial loan than a home loan, particularly if your business or property is considered riskier than other commercial operations.

If it’s a strong loan and we’re in that smaller mum-and-dad business and they’re purchasing a commercial property, it could be in the 4% range, for example, just dependant on risk. Pricing can be really good, and we’ve seen some rates in the 3% range for commercial loans.

It’s dependant on a number of things, such as the bank’s appetite for that sort of transaction, what type of security it is – if it’s a specialised security that’s generally riskier, for example if it’s not just a straight premises, it’s a hotel or something like that. A hotel will generally be more expensive because of the inherent level of risk there.