Commercial Property Finance

If you need a loan to buy your own commercial premises, you usually need to transfer your business banking to the new lender as part of the deal.

However, there are ways to avoid this requirement.

It all comes down to the nature of your situation, the type of property you want to buy and the lender you choose.

How to avoid it

Although most lenders require you to switch all of your business lending as part of the deal, there are some lenders that will allow you to continue your business banking with your current lender.

This is great news!

When you’re running a business, you always want to minimise the amount of disruption to your cash flow so you can keep focusing on your day to day operations and generate an income.

There are typically three ways to qualify for a commercial loan without switching banking:

• You’re borrowing against a residential or commercial property so there is no unsecured portion.
• You’re borrowing less than $1 million.
• You’re taking out a commercial loan with no annual reviews which means that your loan is for a non-specialised commercial property.

Please call us on 0393984862 or complete our free assessment form so we can help you choose a lender that doesn’t require you to switch your business banking.

As there is less legislation governing commercial property loans, the banks have more freedom with their lending policies.

In particular, they are not required by law to prove that a borrower can afford a loan. This has given rise to several income verification options:

• Full doc: This is a standard loan application where you provide full financial statements.
• Lease doc: You must prove that the income from the lease is more than the interest repayments.
• Low doc: You must provide partial income evidence such as an accountants letter, bank statement or BAS statements.
• No doc: You won’t need to no evidence that you can afford the debt.
• Forecasts: You must provide a profit and loss forecast showing that this loan will allow your business to earn additional income which will be sufficient to cover the repayments.

Of course, it is still good practice to lend to people that can afford to repay the commercial property loan! Don’t expect the banks to approve your loan if it represents a high risk. Non-bank and specialist commercial funders may consider a higher risk application such as a no doc loan.

It really depends on your situation and the nature of your business.

In some cases, switching over your business transaction accounts, business overdraft and line of credit facilities, and even equipment finance makes sense.

For example, you may be able to get a better deal by bundling all of your business finance requirements with the one bank.

However, certain banks are better at certain business loan facilities than others such as agrifinance or vehicle finance.

So apart from avoiding disruptions to your business cash flow, it may be in your best interests to leave your business banking where it is and have your commercial loan with a lender that can offer you a sharp interest rate and strong commercial loan terms.

99.9% of the time we don’t charge you a fee. However if the deal is complex and time consuming we may need to charge you a fee. We will discuss this with you before we undertake any fee for service work.

• Full doc: Individuals, companies, trusts and self-managed superannuation funds are acceptable.
• Term: Up to 15 years (longer on application) or 30 years for residential security.
• Interest only: Up to 5 years (longer on application).
• Interest rate type: Variable, fixed (up to 5 years) or bank bill facilities.
• Additional repayments: Allowed on variable loans.
• Redraw: Allowed for amounts that you have pre-paid.
• Offset accounts: Normally not available.
• Line of credit (LOC): Available at higher interest rates.
• Capitalised interest: Available for development or land sub-division finance.

Each lender has their own target market, products and pricing so it is important to get matched with the lender that can accommodate your needs. This is where an experienced commercial mortgage broker can help.

• Commercial property loans that are used for business or investment purposes, with the exception of residential investment properties, are not regulated by the National Consumer Credit Protection (NCCP) Act.

  This means that most commercial borrowers do not have the same protection as home buyers.

  The purpose of your commercial property loan will affect how your loan is assessed:

  • Investment (low risk): To buy or refinance a commercial property that will be leased.
  • Owner occupied (medium risk): To buy or refinance a commercial property that is leased to or occupied by your own business.
  • Working capital (high risk): Financing the day to day operations of your business or liquidity shortfalls.
  • Other purposes: All other commercial, business or investment purposes are considered on a case by case basis, e.g. buying an insurance broking practice.

  Remember, it isn’t what your commercial property loan is secured on that determines the purpose but what your loan is used for.

  Be careful if you’re using a commercial property as security for a loan that is not used for business or investment purposes such as buying a house by using your office as additional security. In this case, the loan would be regulated under the NCCP Act and some commercial lenders would not be able to approve your application.

How do I avoid a GSA?

More often than not, borrowers simply accept a General Security Agreement without bothering to ask if it’s really needed.

Some lenders are more flexible than others and will often waive the need for a GSA depending on the following:

• You’re buying a standard commercial property: Offices, warehouses, factories and retail units are a lot easier to sell compared to pubs, restaurants and commercial farms. The credit department may only argue for a GSA when it comes to purpose-built properties.
• You’re in a strong financial position: You can show this with your last 2-3 years personal and business financials,a strong asset-to-debt ratio, and a clear credit file.
• You have experience and a strong business plan: Having considerable business experience can make or break a commercial loan application and it can help to determine whether you need to provide a GSA or not.