Introduction: Venturing into the realm of commercial property ownership demands not only strategic planning but also a deep understanding of the financing landscape. Commercial property loans offer a gateway to acquiring, developing, or refinancing properties, but the nuances involved require careful consideration. This guide aims to unravel the complexities of commercial property loans, covering borrowing limits, security considerations, loan purposes, income verification, and more. 

Loan Limits and Guarantees: 

Borrowing Limits: 

• Up to 100% of the property value with a guarantor. 
• Up to 80% for loans up to $1 million. 
• Up to 75% for loans up to $2 million. 
• 70% for loans up to $5 million. 
• Loans between $5 million to $50 million assessed case by case. 

Security Considerations: 

Standard commercial properties  are preferred due to their broad appeal and lower risk. 

1. Residential properties (block of units, house, unit, or townhouse). 
2. Office spaces. 
3. Industrial facilities. 
4. Storage facilities, including showrooms and storage units. 
5. Retail premises. 
6. Storefronts. 

Specialized commercial properties  pose higher risks, requiring detailed valuations and substantial deposits. 

1. Subdivided lands. 
2. Developments in commercial or residential properties. 
3. Public houses, hotels, and taverns. 
4. Dining establishments. 
5. Vineyards. 
6. Waste management facilities including landfills and garbage dumps. 
7. Supermarkets (Note that a few lenders may view them as non-specialized). 
8. Private schools (Note that most lenders consider schools as too specialized, but exceptions exist). 
9. Recreation centers (Note that while most banks label them as specialized properties, some may consider your application based on your intended use). 
10. Shopping villages and centers. 
11. Various accommodation options (backpacker, motel, hotel, resorts, bed and breakfast, caravan parks). 
12. Facilities for the elderly. 
13. Automobile dealerships. 
14. Childcare and preschool facilities. 
15. Agricultural holdings and other rural properties. 
16. Event and reception venues. 
17. Petrol stations. 

Loan Purpose: 

• Commercial property loans for business or investment purposes, excluding residential investment properties, are not regulated by the National Consumer Credit Protection (NCCP) Act. 
• Classification based on risk: 
• Investment (low risk): Buying or refinancing a property for leasing. 
• Owner-occupied (medium risk): Acquiring a property leased to or occupied by your own business. 
• Working capital (high risk): Financing daily business operations or addressing liquidity shortfalls. 
• Other purposes: Evaluated case by case (e.g., buying an insurance broking practice). 

Proving Income: 

• Commercial property loans offer flexibility in income verification: 
• Full doc: Standard application with comprehensive financial statements. 
• Lease doc: Proving lease income exceeds interest repayments. 
• Low doc: Partial income evidence like accountant’s letter, bank statement, or BAS statements. 
• No doc: No evidence of ability to afford the debt. 
• Forecasts: Providing profit and loss forecasts demonstrating increased business income to cover repayments. 

Loan Features: 

General Features:  

• Full doc applications accepted from individuals, companies, trusts, and self-managed superannuation funds. 
• Loan terms up to 15 years (longer on application) or 30 years for residential security. 
• Interest-only periods up to 5 years (longer on application). 
• Variable, fixed (up to 5 years), or bank bill facilities for interest rate types. 
• Additional repayments allowed on variable loans. 
• Redraw facility for pre-paid amounts. 

Specific Considerations: 

• Offset accounts normally not available. 
• Line of credit (LOC) available at higher interest rates. 
• Capitalized interest for development or land subdivision finance. 

General Security Agreement: 

• Commercial property loan applications typically require residential property as security. 
• Most banks may also request a General Security Agreement (GSA) over the property and all business assets. 
• Negotiation may exclude a GSA or Guarantee and Indemnity (G&I) if the property income can sufficiently service the debt. 

Commercial Loan Without Switching Banking: 

• Acquiring a loan for commercial premises often involves transferring business banking to the new lender. 
• Strategies to avoid switching requirements are available. 

Choosing a Lender: 

Critical Steps: 

• Identify lenders specializing in the type of finance required. 
• Recommendations differ based on client types (startups, low-risk investors, highly-geared investors, etc.). 

Presenting a Strong Case: 

• Customize applications to highlight strengths and meet specific lender preferences. 

Mitigating Concerns: 

• Provide additional information to address concerns. 
• Adjust situations to align with lending guidelines. 
• Negotiate pricing to match application risk. 

Getting a Low Interest Rate: 

Factors Impacting Rates: 

• Lender’s cost of funds. 
• Risk matrix considerations: 
• Security property location, condition, and appeal. 
• Diversification of property portfolio. 
• Local property market conditions. 
• Interest cover, LVR, lease duration, tenant strength, borrower’s asset position. 

Choosing a Lender: 

Considerations: 

• Reputation matters; research lender reputations, especially for private lenders. 
• Negotiate from a position of strength. 
• Reputation of major banks; exercise caution as they prioritize their interests. 

Annual Reviews: 

• Typically required for: 
• Loans over $2,000,000. 
• Unsecured facilities. 
• Specialized security properties. 
• High-LVR, interest-only loans. 
• Loans where repayments are challenging. 

Using a Mortgage Broker: 

Benefits: 

• Experience and guidance through the complex commercial loan application. 
• Specialization in specific finance types. 
• Broker relationships with decision-makers. 
• Competitive pricing and access to flexible lending policies. 

Conclusion: 

• Navigating the landscape of commercial property loans demands strategic planning, meticulous preparation, and access to a comprehensive understanding of the market. Engaging with experienced professionals, especially mortgage brokers, proves invaluable in securing the right financing for your commercial property ventures. Whether a seasoned investor or a newcomer, a well-informed approach, coupled with strategic negotiations, will pave the way for successful commercial property ownership.