Commercial property loans in Melbourne offer an opportunity to purchase or refinance non-residential property as a business or investor. However, navigating the complexities of borrowing can be challenging if you don’t have a clear understanding of how these loans work.
This guide will give you an overview of the basics of commercial property loans, the different borrowing options and what to consider before you submit an application. You’ll find it helpful if you live in Melbourne or any other area.
- What is a Commercial Property Loan?
- Types of Commercial Property Loans
- Key Factors to Consider for a Commercial Property Loan
- How to Secure the Best Loan for Your Needs
- Partner with Experts for Tailored Solutions
What is a commercial property loan?
A commercial property loan is a type of finance used to purchase, develop or refinance properties intended for business purposes.
Unlike residential mortgages, a commercial loan in Melbourne is tailored for offices, retail spaces, warehouses or industrial facilities. These loans typically have stricter eligibility requirements and are often more complex due to the risks involved with premises being used for business purposes.
Generally speaking, key features of commercial property loans include:
- Higher interest rates: Commercial loans generally have higher rates than residential mortgages due to increased risk.
- Shorter loan terms: Loan terms often range from 5 to 15 years, although longer terms may be available.
- Varying repayment options: Repayments can be structured to suit business or borrower cash flow needs.
Types of commercial property loans
Understanding the types of commercial property loans available in Melbourne and other parts of Australia can help you choose the right option for your needs:
1. Standard commercial loans
This type of commercial property loan can be used to purchase or refinance existing properties in Melbourne or other areas. You may need to provide a deposit ranging from 20% to 40% of the property’s value, depending on the lender’s requirements and the financial position of you or your business.
2. Development loans
Development loans are a common choice if you are looking to fund construction or major renovations. The funds from these loans are often released in stages that align with construction milestones.
3. Line of credit
A line of credit provides flexible access to funds as needed. This is particularly useful if you or your business are managing multiple commercial properties or dealing with unpredictable expenses.
4. Lease doc loans
Lease documentation loans, or lease doc loans, are designed for investors who have secure rental income streams. Approval for these loans is based on the property’s rental income rather than the borrower’s financial position or income.
5. Low-doc or no-doc loans
Small business owners or self-employed individuals who may not have traditional financial documentation can consider low-doc or no-doc loans. These loans require less paperwork but often result in higher interest rates and repayments.
Key factors to consider for a commercial property loan
Before you apply for a commercial property loan in Melbourne or anywhere else, it’s important to understand what lenders will ask about and expect from you.
Your broker will help to familiarise you with the following:
1. Loan-to-Value Ratio (LVR)
LVR is the percentage of the property’s value that the lender is willing to finance. A typical LVR for commercial property loans ranges from 60% to 80%, depending on the lender and property type. A higher LVR may require you to pay for lender’s mortgage insurance (LMI).
2. Financial documentation
Lenders expect to see detailed financial records, including business performance data, profit and loss statements, tax returns and cash flow forecasts, or evidence of personal income if you borrow as an investor. Having these documents in order can speed up the application process because it will reduce the amount of back and forth between you, your broker and the lender.
3. Interest rates and fees
Commercial property loans often come with variable or fixed interest rates. Variable rates fluctuate with market conditions, while fixed rates provide certainty over the loan term. Before you apply to borrow, you’ll also need to speak to your broker about fees such as application costs, valuation fees and ongoing charges so you are clear on the overall cost of the loan.
4. Loan repayment terms
Repayment terms vary widely. Some loans offer interest-only repayments for a set period, while others require principal and interest repayments from the outset. Your Lend&Co commercial property loan specialist can help you determine which loan is most suitable for your circumstances based on repayment terms and other factors.
5. Property valuation and rental yield
For investment properties, rental yield plays a significant role in determining loan approval. Lenders will typically assess the property’s market value and rental income to evaluate its profitability before approving a loan.
How to secure the best loan for your needs
To secure a commercial property loan that aligns with your business or investment objectives, consider the following steps:
- Work with a commercial lending specialist: Partnering with a broker who specialises in commercial property loans ensures access to tailored advice and competitive loan products.
- Compare lenders: Interest rates, fees and terms can vary significantly between lenders. Take the time to research and compare.
- Prepare a strong loan application: A well-prepared application that demonstrates financial stability and clear business goals can improve your chances of approval.
- Understand the risks: Commercial property loans carry inherent risks. Ensure you have a strategy in place to manage potential challenges, such as interest rate increases or unexpected business downturns.
Partner with experts for tailored commercial property loan solutions
Understanding the basics of commercial property loans is the first step to secure the right finance for your property needs. Whether you’re purchasing a new office, expanding your business premises, or investing in commercial property to expand your portfolio, having the right financial partner can make all the difference.
Book a consultation with Lend & Co for commercial lending solutions and take the first step towards achieving your property goals. We are based in Melbourne but can provide support no matter where you are based in Australia.
Book a free strategy call to find out more.
