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Did you know that the value of the commercial real estate market in Australia is expected to reach AUD 1.67 trillion by 2024?
This huge number shows just how big the market is growing, with an annual growth rate of 2.40% from 2024 to 2029.
Knowing how it works, whether as a seasoned investor or a new developer, is very important and will give you that extra edge you need in the competitive market.
Let us understand the whole process in this blog.
What Is Commercial Land Funding?
Commercial land funding refers to any loan that is provided by a financial institution or private lender for the development and/or refinancing of any land deal that involves commercial usage in nature. It is project-based financing: office buildings, retail stores, industrial estates amongst others, as well as multi-unit residential apartments.
It differs from residential in that it requires higher amounts, much stricter criteria, and more comprehensive documentation.
Commercial land loans can be used for:
- Acquiring undeveloped land for future development
- Purchasing land for immediate construction projects
- Refinancing existing commercial land loans
Types Of Commercial Land Funding
There are several types of commercial land funding, and each is tailored to different needs.
Here are some of the most common types:
| Type Of Loan | Purpose |
|---|---|
| Development Loans | Used for financing construction projects on commercial land. |
| Land Acquisition Loans | For purchasing undeveloped or developed commercial land. |
| Bridging Loans | Short-term loans to cover immediate land purchases or expenses. |
These loans vary in terms of interest rates, repayment structures, and loan terms. It’s essential to understand which loan type best suits your needs before applying.
Key Factors To Consider When Applying For Commercial Land Funding
- Interest Rates: It should also be noted that the interest rate of commercial land loans is higher than that of residential ones. The above can either be fixed or variable and it is always important to know how such rates affect your repayments.
- Repayment Terms: In most cases, the loan terms for commercial land funding are normally between 1 and 5 years. When getting your repayment schedule, think about whether you intend to develop and sell it fast or not.
- Creditworthiness: Being a consumer credit financing depends on your credit score and other aspects of your credit history. Before you go looking for financing you should establish good credit all across the board.
- Property Valuation: Banks will want an independent valuation of the land before they are willing to grant that loan. It will impact the amount of capital that you are able to mobilise, which is normally a function of how the business is valued.
- Location: It has been found that the location of any property defines the property’s worth and the Return on Investment.
- Zoning Laws: The land you are interested in must be zoned according to your desired use of the property.
- Market Demand: Make a study on the local market to determine whether there exists a market for the proposed development.
- Financial Projections: Make sophisticated projections of cash inflows & outflows, as well as the business’s profitability.
- Experience: Most of the lenders look for individuals with previous experience in commercial property development.
- Exit Strategy: Ensure that there is a clear-cut strategy for the repayment of the loan whether in case the house is to be refinanced or when the developed property is to be sold.
The Benefits Of Working With A Commercial Land Funding Lender
- Expertise: Specialised lenders understand the unique challenges of commercial land development.
- Flexible Terms: Commercial lenders often offer more tailored financing solutions than traditional banks.
- Faster Approval: Many commercial lenders have streamlined processes for quicker decision-making.
- Higher Loan Amounts: Commercial lenders typically offer larger loans suitable for substantial projects.
- Network Access: Established lenders often have connections with other professionals in the industry.
Common Misconceptions About Commercial Land Funding
- Only Large Developers Qualify for Loans: While larger developers may have more access to funding, smaller investors and businesses can also secure commercial land loans with the right preparation and financial planning.
- You Need Full Development Plans to Apply: Although detailed plans can help, many lenders are open to funding undeveloped land with the intention of future development. However, you’ll need to show your capability to develop or manage the property.
- All Lenders Have the Same Criteria: Different lenders offer different terms and criteria. Private lenders, in particular, often have more flexibility compared to traditional banks.
Document Requirements For Commercial Land Funding Applications
When applying for commercial land funding, you’ll need to provide specific documents to support your loan application. These documents allow lenders to assess the viability of your project and your ability to repay the loan.
| Document Type | Description |
|---|---|
| Business Plan | Details of the project, including expected costs and timelines. |
| Property Valuation | An independent valuation of the land. |
| Financial Statements | Personal and business financials for the past two years. |
| Proof of Deposit | Documentation showing your ability to cover the down payment. |
| Credit History | A report detailing your creditworthiness and past credit performance. |
| Development Approvals | Permits and approvals from local authorities, if applicable. |
Want To Secure Funding For Your Next Commercial Land Project?
At Knote, we make this Commercial land financing process quite smooth by offering speedy approvals for proposals, personalised assessment, and flexibility in loan terms.
Be it buying, developing, or refinancing, our private lending options cater to all, with up to $10,000,000 and limited paperwork for a speedy disbursal process.
Apply now and take your next stride in the direction of your goal related to a commercial land investment!
