Exploring Commercial Property Loan Rates: Australia

By: Aaron Robbins0 comments

Australia’s dynamic commercial property market presents enticing opportunities for investors and business owners alike. However, securing the right financing is crucial in capitalising on these prospects. Understanding the intricacies of commercial property loan rates is an essential step towards making informed financial decisions in this competitive landscape.

We aim to equip readers with the knowledge they need to navigate the intricacies of commercial property loan rates, empowering them to seize opportunities and achieve their business objectives. Read on to find out more!

Firstly, what are commercial property loans?

In Australia, there are several types of commercial property loans available. These loans are specifically designed to finance a commercial property purchase, such as office buildings, retail spaces, industrial facilities, and mixed-use properties. You can also use commercial property finance to purchase land zoned for business use or a multi-residential unit or apartment complex.

Commercial property loans can either be long-term or have shorter loan terms depending on the finance type. Compared to the finance options for a residential property, commercial property loans can also come with much higher loan amounts, as commercial properties such as an office space or industrial units typically come with a much higher price tag than residential properties!

The range of commercial loans available in Australia

Several different commercial property loans are available in Australia, depending on the purpose of the finance.

Commercial property investment loan 

This type of loan is used to finance commercial property purchase for investment purposes. It can be used for properties that generate rental income, such as office buildings or retail spaces.

Commercial property development loan

This loan is specifically designed to fund the development of commercial properties, including construction or renovation projects. It can be used by developers or businesses looking to build or improve commercial properties.

Commercial property refinance loan

This loan allows borrowers to refinance an existing commercial property loan with better terms or to access the equity in the property. It can help reduce interest rates, extend loan terms, or provide additional funds for other purposes.

Commercial bridging loan

Bridging loans are short-term loans that bridge the gap between purchasing a new property and selling an existing property. They can be used to finance commercial properties, providing temporary funds until a longer-term loan can be secured.

Low-doc commercial loan 

This type of loan is designed for self-employed individuals or businesses with limited financial documentation. It offers a simplified application process by requiring less documentation, making it easier for borrowers to secure financing for commercial properties. Most commercial loans from major banks are considered full doc loans (loans that require full documentation).

Mezzanine finance

Mezzanine loans are a form of secondary financing that sits between the senior debt and equity in a property’s capital structure. They are often used to bridge the gap between the amount of senior debt available and the total funding required for a commercial property project.

What are the commercial property loan rates in Australia?

Just as with residential property loans such as home loans, as well as other personal and business loans, the interest rates on commercial property loans differ, depending on several factors. Commercial property loans aren’t an ‘off the shelf’ product, therefore, when conducting your due diligence on your loan options, there’s a lot to consider.

Currently, the Reserve Bank of Australia (RBA) sites commercial lending rates to range between 4.75% pa to 6.77% pa — however, depending on the type of finance and your financial situation, your final commercial property loan rate may be lower or higher than the average interest rate.

Factors that affect commercial property loan rates

Several factors impact commercial loan rates in Australia, including:

1. Reserve Bank of Australia (RBA) cash rate: The RBA sets the benchmark interest rate, known as the cash rate. Commercial property loan rates often fluctuate in response to changes in this rate. If the cash rate increases, it generally leads to higher interest rates for commercial property loans.

2. Economic conditions: The overall economic environment, including inflation, economic growth, and employment rates, can impact commercial property loan interest rates. In times of economic stability and growth, interest rates may be lower. Conversely, during periods of economic uncertainty, interest rates may be higher to compensate for the increased risk.

3. Loan-to-Value ratio (LVR): LVR refers to the percentage of the property’s value that a lender is willing to finance. A higher LVR indicates a higher loan amount relative to the property value. Lenders typically charge higher interest rates for loans with higher LVRs as they perceive them as riskier.

4. Property type and quality: The type of commercial property and its quality can influence interest rates. Lenders may differentiate between properties based on location, age, condition, and potential for income generation. Higher-quality properties in prime locations may be seen as less risky and may attract lower interest rates.

5. Borrower’s creditworthiness: The borrower’s creditworthiness plays a significant role in determining the interest rate. Lenders assess the borrower’s credit score, financial history, business track record, and ability to service the loan. Borrowers with strong credit profiles and financial stability will likely obtain more favourable interest rates.

6. Loan term and repayment structure: The loan term and repayment structure can impact interest rates. Longer loan terms or loans with flexible repayment options may have slightly higher interest rates than shorter-term loans with fixed repayment schedules.

7. Regulatory environment: Government regulations and policies related to the banking and finance sector can influence interest rates. Changes in regulations, such as increased capital requirements for lenders, can impact the cost of funds for banks, which may be reflected in loan interest rates.

How to get the best rate on your commercial loan

It’s important to note that interest rates can vary between lenders, so it’s advisable to shop around and compare offerings from different financial institutions to find the most suitable loan terms and interest rates for your specific commercial property financing needs. If you’re a business that’s experienced poor credit, have intermittent cash flow or you’re a new business, then you may find that the bank lenders charge you exorbitant rates, or disqualify you from applying based on your poor credit rating.

To access lenders with more flexible loan terms, and who will work with your unique situation, consider using private lenders. Private lenders are non-bank lenders renowned for their efficiency, flexibility and competitive interest rates.

Whether you’re a start-up or an existing business looking for a business loan to fund a commercial property purchase, the team at Diverse Funding Solutions can find you a suitable lender amongst over 200 of Australia’s top private lenders. Get a quote today, or speak to the team to understand how we work to get you the best commercial property loan rate!

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