Why do most Australian businesses struggle to secure the right commercial lending solution for their property needs?
The choice of loan type can significantly impact your business’s financial health and growth potential over the coming years.
But with so many loan types and lending channels available, how do you choose the right commercial property loan?
This blog summarises the types of loans available for commercial property in Australia, their features, and key considerations to help you select the best option for your needs.
Understanding Commercial Property Finance
A variety of lending arrangements created especially for company property purchases are included in commercial property funding. These loans differ substantially from residential mortgages in terms of interest rates, deposit requirements, and approval criteria.
Stricter financing regulations govern the commercial real estate industry in Australia. Banks assess borrowers based on business cash flow, property income potential, and overall financial stability rather than personal income alone.
Types of Commercial Property Loans
Several loan types cater to different commercial property needs. Each has unique features, as shown in the table below:
| Loan Type | Purpose | Key Features |
|---|---|---|
| Standard Commercial Loan | Purchase or refinance existing commercial properties. | Long terms (10–30 years), fixed or variable rates, up to 80% LVR. |
| Construction Loan | Fund new commercial developments or major renovations. | Stage-based funding, interest-only during construction, higher rates. |
| Bridging Loan | Cover short-term gaps during property transitions. | Short terms (6–24 months), higher rates, flexible repayment options. |
| Low-Doc Loan | Support borrowers with limited financial documentation. | Flexible income verification, higher rates, up to 82% LVR. |
| SMSF Loan | Invest in commercial real estate with a self-managed super fund. | Limited recourse borrowing, strict compliance, competitive rates. |
These options, offered by commercial loan providers, suit various scenarios, from buying a retail shop to developing industrial units. A commercial loan lender assesses your financials and property details to determine eligibility.
Standard Commercial Property Loan
A standard commercial property loan is ideal for purchasing or refinancing established properties like offices or warehouses. Commercial lending for these loans typically offers terms of 10–30 years, with fixed or variable interest rates. Lenders may finance up to 80% of the property’s value (Loan-to-Value Ratio, or LVR), requiring a 20% deposit. Interest-only repayments are available for investment properties, enhancing cash flow. Commercial loan providers like major banks offer competitive rates for low-risk properties in metropolitan areas.
Construction Loans For Commercial Property Funding
For new developments, a construction loan provides commercial property funding in stages, aligned with building progress. These loans carry higher interest rates due to the risk of unfinished projects. Repayments are often interest-only during construction, converting to principal and interest once completed. Commercial loan lenders require detailed project plans and strong financials. This option suits developers building retail complexes or industrial estates, but it demands careful budgeting to cover costs.
Bridging Loans for Short-Term Needs
A bridging loan addresses temporary financing gaps, such as buying a new property before selling an existing one. These commercial business loans have short terms, typically 6–24 months, and higher interest rates. Private lenders for business loans often provide bridging finance due to their flexibility. This loan suits businesses needing quick funds for time-sensitive acquisitions, but the high cost requires a clear exit strategy, such as property sale or refinancing.
Low-Doc Loans for Flexible Commercial Lending
Self-employed borrowers or individuals with fewer financial documents are the target market for low-doc loans. Commercial loan providers offering low-doc options accept alternative income verification, like business activity statements, making them accessible for small businesses. These loans can reach up to 82% LVR but come with higher interest rates due to increased risk. A commercial loan lender may approve low-doc loans for non-specialised properties, such as retail or office spaces, easing the path for investors with complex financials.
SMSF Loans for Commercial Property Funding
Self-managed super fund (SMSF) loans allow purchasing commercial property within a superannuation fund, often for leasing to a business. By using a Limited Recourse Borrowing Arrangement (LRBA), these loans reduce the risk to the property of the lender. Commercial lending through SMSF loans requires compliance with strict superannuation laws, ensuring the property meets the sole purpose test for retirement benefits. Commercial loan providers offer competitive rates, but borrowers need strong financials and legal advice to navigate regulations.
Loans for Commercial Land
A loan for commercial land is used to buy vacant land that your company will develop for use or investment in the future. Land loans have low loan-to-value ratios (often 50–65%) and higher interest rates since they are riskier loans because the land won’t start producing revenue right away. A developer who plans a large project would likely be interested in this loan type, but the developer must do a lot of financial planning to cover the holding costs until they start developing.
Need Fast Commercial Property Funding? Knote Can Help
Unsure which commercial property loan fits your strategy? At Knote, we make it easy. Same-day approvals, no credit checks to apply, and access to 1st or 2nd mortgages, caveats or gap funding, means that we are set up for fast decisions and flexible lending.
Our team understands how urgent business can be – and we back that up with fast, straightforward finance that banks can’t beat. Ready to move? Apply now and let Knote finance your next step.
