A home loan application is mostly about you: your income, your commitments, your deposit. A commercial property application is about two things at once, the borrower and the building, and the building is usually looked at first.
What a lender reads in a commercial file
- The lease. Who the tenant is, how long is left to run, and what happens at expiry. A long lease to an established tenant supports the income; a lease close to its end is treated with more caution.
- The income against the price. Lenders compare the rent the property produces with what you are paying for it, and with the repayments the loan would need.
- The outgoings. Who pays rates, insurance and maintenance, and how that is set out in the lease.
- The buying structure. Personal names, a company, a trust or a self managed super fund each change how the application is assessed.
Why lender choice matters
Commercial lending appetite varies widely. Some lenders prefer certain property types or locations and step back from others. Matching the asset to a lender that wants it is often what makes the difference to the terms offered.
For more on how we help, see our Commercial Property Finance page.
Video transcript
I'm Jack Si from Australian Finance Service Solutions.
Commercial property finance is assessed very differently from a home loan, and that difference catches out a lot of first-time commercial buyers. Here is how a lender approaches it.
With a home loan, the lender is mostly assessing you. With a commercial property, the building has to stand on its own first. The lender looks at the rent it produces, who the tenant is, how long the lease has to run, and what the return looks like against the purchase price.
That is why the lease is often the most important document in the file. A long lease to a strong tenant reads very differently from a short lease to a tenant nobody knows. Where a lease is approaching its end, the lender sees an income stream that may not continue, and the terms usually reflect that.
Deposits and terms also differ. Commercial lending generally requires a larger contribution than residential, the loan terms are often shorter, and the review obligations continue after settlement.
None of that is a problem if you know it going in. It becomes a problem when it arrives as a surprise.
Our work is to look at the building and the borrower together. We go through the lease, the outgoings and the structure you plan to buy in, then we take it to lenders whose appetite matches that asset. Not every lender wants every kind of commercial property.
If you are looking at a commercial purchase, there is a contact form on this page.
This is general information only and is not credit advice.
Want us to look at your situation? Send us a message or call 1300 968 888.
General information only, not credit advice. It doesn't take your personal circumstances into account.
Jack (Muyuan) Si is a Credit Representative (516785) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No. 509484).