Securing Finance for Retail Properties 

Investing in retail shops is common, but obtaining a loan requires a solid business case. Despite banks’ caution due to economic uncertainties, opportunities exist with the right approach. 

Borrowing Limits and Terms 

Commercial lenders offer favorable terms for “standard” retail properties, allowing up to 80% property value or 100% with a guarantor. Purpose-built properties may secure up to 60%, while retail business loans could cover 50%. Loan terms range from 15 to 30 years, with interest-only options for up to 5 years. 

Property Valuation Factors 

• Size of the Shop: Banks consider spaces ranging from 20-50 sqm2, valuing larger premises higher, especially in prime locations. 
• Location: Retail properties in central business districts with good foot traffic are valued more, indicating long-term tenancy prospects. 
• Zoning: Most retail properties are zoned mixed use (Commercial 1), aligning with business needs and consumer convenience. 
• Tenant: Banks evaluate proposed rental income, emphasizing the importance of a stable lease with 2 to 3 years remaining. 

Purpose-Built Properties and Market Appeal 

Standard retail properties are preferred by banks due to their adaptability for various businesses. Purpose-built properties, tailored for specific uses like butchers, may face conservative lending due to limited market appeal. 

Due Diligence for Buyers 

• Local Council Planning: Check with the local council for development plans or zoning changes that might impact profitability. 
• Vendor’s Tenant Arrangements: If buying a property as vacant possession, negotiate tenant arrangements before committing. 
• Starting a Business or Niche: Evaluate the viability of starting a new venture or investing in a proven, evergreen business. 

Qualifying for Finance as a Business Owner 

If running the business yourself: 

• Experience: Demonstrate 3-5 years of managerial experience in a similar industry for credibility. 
• Business Plan: Provide a detailed business plan and profit forecast, differentiating your niche and market strategy. 
• Competition Management: Showcase strong business and marketing acumen to navigate competition and maintain profitability. 

FAQs for Retail Commercial Loans 

• Attached Residence: If the property includes an attached residence, you can apply for a residential home loan, offering higher LVR and lower interest rates. 
• Shopping Centre Spaces: Financing spaces within shopping centres is challenging as these spaces are usually rented. However, capital requirements for business setup may be financed. 
• Arcade Ownership: Owning a shop in an arcade differs from shopping centres, allowing banks to use it as security. Strata title arrangements are common in arcades. 

Seek Professional Guidance 

Engage with experienced mortgage brokers who understand retail commercial loans, helping you build a compelling business case and negotiate favorable terms.