Investing in commercial real estate has the potential to be lucrative, but it often requires substantial capital. Commercial real estate loans can be beneficial tools that help individuals and businesses acquire, develop, or refinance commercial properties. In Australia, where the real estate market is generally robust and constantly evolving, understanding the nuances of commercial real estate loans is crucial for a successful commercial property purchase.
This article serves as a comprehensive guide to mastering commercial real estate loans in Australia.
What are commercial loans?
The purpose of a commercial property loan can be broadly categorised into three main types:
Investment purposes:This refers to taking out a loan to purchase, construct, or renovate a commercial property to rent it out to tenants or sell it in the future.
Owner-occupied: This involves using a commercial property loan to acquire, construct, or renovate premises that will be used for your own business operations.
Working capital: This entails obtaining a commercial property loan to finance your business’s day-to-day activities and operational expenses. Usually, this lending structure relies on sufficient equity being tied up in an existing commercial property owned by your business.
The level of risk associated with a commercial property loan affects the approval process and the terms and conditions offered by lenders. Lower-risk loans are more likely to be approved and come with more favourable terms. However, that risk is assessed on several factors, including the property value, rental income being received, commercial property interest rates, and of course, your financial situation (including whether you have a bad credit history or not).
It’s important to note that certain types of commercial properties can provide greater security for lenders compared to others. For instance, purchasing an established office building with long-term tenants and existing lease agreements in place may be considered less risky than building a property from scratch without any prior tenant commitments.
In cases where the loan application is considered higher risk, lenders may require additional security, such as other business assets or a residential property. You may be required to provide this security under a general security agreement (GSA) however, the need for additional security depends on the specific circumstances of your situation.
Different types of commercial property loans
Commercial real estate loans in Australia come in various forms, each designed to cater to specific needs and situations. Some common loan types include:
Commercial property loans: These loans help finance the acquisition of commercial properties, such as office buildings, retail spaces, or industrial facilities.
Refinance loans:Designed to replace an existing loan with better terms, refinance loans may help borrowers secure lower interest rates or access additional capital.
Bridging loan: Bridging finance leverages equity in an existing property to finance the gap between selling an existing property and purchasing a new commercial property.
Eligibility Criteria for getting a commercial property loan
To qualify for a commercial real estate loan in Australia, borrowers typically need to meet specific eligibility criteria, which may vary among lenders. Most commercial property loans form part of business lending, meaning that the borrower is generally a business entity rather than an individual. Key factors that lenders generally consider include creditworthiness, financial statements, property assessment, and the Loan-to-Value Ratio (LVR) of the prospective finance.
Things to consider before utilising a commercial property loan
Obtaining a commercial real estate loan in Australia may present certain challenges that borrowers should be prepared for:
Lenders typically have strict criteria, making it crucial for borrowers to present a strong financial profile and a viable property investment.
Commercial real estate loans often attract higher interest rates due to increased risk than residential ones.
Commercial property loans generally require a larger deposit, and lenders usually cap the loan amount based on the property’s appraised value.
Economic conditions and market trends can influence lenders’ willingness to finance commercial projects, making it essential to stay informed and adaptable.
Tips for getting a commercial real estate loan
Obtaining a commercial real estate loan can be complex, but with careful planning and preparation, you may be able to increase your chances of success. Here are some tips to help you navigate the loan application process:
Prepare a solid business plan: Develop a comprehensive business plan that outlines your commercial real estate project, including your objectives, market analysis, financial projections, and repayment strategy. Lenders want to see that you have a clear vision and a viable plan for success.
Understand your financials: Organise your financial documents, such as balance sheets, income statements, tax returns, and bank statements. It is reasonable to expect to provide evidence of your financial stability and demonstrate your ability to repay the loan. If your credit history is less than perfect, be prepared to explain any negative aspects and emphasise positive financial indicators, such as a strong cash flow or equity in other properties.
Build a strong credit profile:Maintain a strong personal and business credit score by paying bills on time, reducing outstanding debts, and minimising credit utilisation. A higher credit score may increase your chances of securing favourable loan terms and interest rates with most lenders.
Gather collateral and equity:Commercial real estate loans typically require collateral, such as the property itself or other assets, to secure the loan. Lenders often expect borrowers to contribute a certain percentage of the project’s total cost as equity, demonstrating your commitment and potentially lowering their risk.
Research and choose the right lender:Research different lenders to find those specialising in commercial real estate loans. Consider their loan terms, interest rates, fees, and their experience with projects similar to yours. The major banks and traditional lenders may shy away from commercial lending due to being perceived as a higher-risk investment than residential lending.
How to get fast funding for your commercial loan
If you’re looking at your loan options for a commercial property loan, then Diverse Funding Solutions may be able to assist. With access to over 200 of Australia’s top private lenders, we can help source the right commercial lending solution for your commercial property investment aspirations.
Can a standard mortgage broker help source commercial property loans?
Due to commercial lending being quite different from lending for residential properties, most residential mortgage brokers do not specialise in commercial property loans. Therefore, it may be best to seek the specialised knowledge and experience of commercial lenders when seeking finance for commercial property investment.
Do commercial valuations cost the same as residential property valuations?
Valuations on residential properties typically cost much less than those for commercial property. That’s because there are normally fewer factors to consider in a residential property, and generally speaking, there is considerably more work involved in providing a thorough valuation for a commercial property than in a residential property.
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With over 200 diverse lenders, including non-bank private lenders, the team at DFS can structure a loan that works for you. Your success is our success.
We assist clients with home loans, private lender loans and various types of business loans in all parts of Australia.
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Aaron at Diverse funding has been a lifesaver for our small business.The whole process was very professional and always considerate of our situation.We can not recommend this company highly enough.
Exceptional! Couldn't recommend highly enough been with major banks for years and delays and processes for small business that held up growth. Diverse funding solutions gave options more streamlined and professional and delivered quickly that has seen opportunities for our business not be missed and contributed significantly to our growth. Thank you Mel, recommending DFS where I can unbelievable really!
Rajneesh Adapa
07:05 03 Sep 24
Great service by Aaron, he has done very professionally looking into my business loan. Every Leander had rejected by loan , however Aaron has process application . Very happy with service and process. Thank so much Aaron
Coco Accounts
06:28 06 Aug 24
Aaron was fast, efficient and resourceful when I approached him for our business finance requirements. I would highly recommend
Maree Cashen
23:08 15 May 24
Words can't describe how much Mel has helped us get the start we needed for our dream business. Her honesty, enthusiasm and genuine belief in us is amazing. We wouldn't be able to begin this journey without her. Thank you Mel for all you have done for us.Maree and Beck - The Coven
Stephen Franklin
12:23 27 Mar 24
Aaron made the entire process an enjoyable experience. His expert knowledge and professional manner was evident from the first conversation and he was able to arrange everything from start to finish. Fast. Aaron from Diverse funding solutions, Top professional Broker.
Clint
05:09 21 Feb 24
Aaron his team are extremely professional and most importantly ethical. Funding was fast and the process slick!
Wayne Griffin
09:49 06 Feb 24
My initial interactions with Aaron, whilst looking for a construction loan, seemed almost too good to be true! Aaron was always courteous, friendly and honest and was able to find the funding we needed. Thanks, Aaron, for your patience throughout the whole process, giving us confidence we would reach our end goal. I would not hesitate to recommend Aaron and Diverse Funding.
j t
06:24 24 Nov 23
Dealing with Aaron was a pleasure from beginning to end, his professionalism, level of care and respect is beyond words.He kept us informed every step of the way, and that never happens once someone gets your business.Thank you Aaron
Adam Bond
03:54 02 Nov 23
I took out a caveat loan with Aaron from Diversity Funding, was apprehensive about these type of loans to begin with, but have to give it to Aaron he handled the process very well, and the loan was exactly as he said it would be. Easier process than required by others, fast next day settlement, I'll be giving Aaron further business in the future. Best recommendation I can give. Adam B
Stuart Allen
10:19 27 Oct 23
I would sincerely like to thank Melanie for all her help. Melanie has given me a major start in life and I'll be forever grateful! Extremely professional and doesn't waste time getting loans done.
Serena Park
03:54 17 Oct 23
Michelle was awesome in helping me get my funds so quickly and efficiently all the way to the end of the application process. I would definitely recommend Diverse Funding Solutions. Keep up the hard work in helping Australians in need in this down economy!
Fgs Roadways
01:50 26 Sep 23
Patrick has been a great help Excellent turnaround with the best possible solutions ,less time with good options and rates ,
Automatorr
03:40 14 Sep 23
Melanie is fantastic! She understood our needs and situation first, then helped out finding us the best option. Money in the bank within 2 days. Couldn't have asked for a better outcome. Thanks Melanie you're a star.
Michael Medic
16:09 11 Jul 23
To be Honest Aaron! THANK YOU!!! For all Your HELP!!!Certainly You are MUCH BETTER to Deal with than SomeBanks that I approached as well as other Financial Institutions!Thank You!!
Emmanuel Papas
00:58 30 Jun 23
Aaron was very informative, well organized, and on top of my loan application throughout all stages of the approval process. I will definitely use him again for any future lending requirements.
Sherreena Rizvi-gay
01:28 06 Jan 23
Aaron worked over and beyond to help facilitate funding for my company. I'd personally recommend Aaron from Diverse Funding Solutions to anyone in need of some finance. Thanks again Aaron... :)
themelina Kassiou
04:06 04 Jan 23
Aaron was a pleasure to work with. Very honest, efficient and provided a great customer experience. I would highly recommend Diverse Funding Solutions.
Daniel Uzelac
00:41 03 Jan 23
Aaron is the guy to go to for solution. Excellent customer service, advice and very helpfull/knowledge to get you the best outcome. Thank you again and look forward to doing more business in near future. Highly recommend
Michael Pounder
19:21 27 Nov 22
Not enough stars for this guy!!!After struggling to refinance with my own bank I stumbled across Aaron and it was all go from there. All done and dusted within a week, low interest rate with great terms and conditions. Updated all the way, this was one of the easiest things to do when it looked like it was going to be impossible.Can’t thank this Champion enough.The new business is up and away.Thanks again Legend🤙🏻👍🏻
david mullins
06:57 31 Oct 22
Aaron is a "yes man". Nothing too hard for him. He gets results.
Harmandeep Singh
13:56 12 Sep 22
Aaron has been a great help . Quick turnaround with the best possible solutions . I would recommend Everyone to give Aaron a go and get the best outcome.
Gurpreet Kohli
12:26 29 Jun 22
Aaron has a great knowledge and was able to help us with a few suitable options. Keep up the good work.
Leanne Hume
01:11 23 Jun 22
Aaron made funding of our business venture easy and followed through with everything in a timely manner to get the funding fast and delivered efficiently. We will be back for part 2 of our venture!
Ewan Stoddart
01:22 24 Sep 21
Great experience, very happy customer.Have just finished our refinancing, and could not have done it without Aaron's support. Dealing with the banks is not, and was not, an easy or simple process. Letting Diverse do the hard work for us eliminated the frustration, and was critical in getting the deal across the line, managing multiple points of contact through to completion.Great service, always kept us in the loop. Great outcome too, pushing for the best deal and then holding the bank to account.Would thoroughly recommend, thanks guys.
Prasun Banerjee
02:37 29 Aug 21
Aaron from Diverse Funding helped in organising a term sheet for a large funding requirement in a very short time. While we could not proceed eventually, Aaron was very professional throughout and we look forward to working together soon.
Dani Naamo
23:27 26 Aug 21
Diverse Funding Solutions had the best customer service,Aaron was really helpfully with the loan options
CT Johnson
00:38 29 Jul 21
Aaron is not only one of the most effective and best connected mortgage brokers and private lenders I’ve ever worked with, he’s also a genuinely great guy who cares about his clients and bends over backwards to find the best deal for them. Aaron and the team at Diverse Funding just won’t stop until the client gets the deal they’re after, and that deal has SETTLED.
Blue Wren
00:39 16 Jul 21
I found Aaron Robbins from Diverse funding solutions to be very helpful and cooperative in putting together a commercial property finance solution for me. I will be using him again for further commercial finance.Thank you AaronDominic van Dyk
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01:31 13 Jul 21
Diverse Funding Solutions are extremely good in their commitment and services. In my particular opinion they are more than 5 stars.
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01:18 24 Jun 21
Aaron was fantastic from the get go! Our circumstances where tricky but he was up for the challenge. Over the course of 2 weeks he's tried different loan options and many lenders to finally find one that would give us a real go. In this time I have found Aaron to be very responsive and always on the ball. It's been a real pleasure dealing with him.
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04:44 30 Apr 21
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05:52 24 Apr 21
Aaron was very attentive and followed up at each stage of the process. He also kept me informed as the Accountant on a regular basis. I would recommend Diverse Funding Solutions.
Robert Maronese
23:09 22 Apr 21
Aaron was totally professional and made the loan process for my SMSF investment property as trouble free as possible, I would definitely recommend him.
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01:17 20 Jan 21
It has been a great experience working with Aaron. He is genuine and looks out for the best interest of his clients. If you are looking for finance I have no hesitation in recommending Aaron at Diverse Funding Solutions.
Brad Williams
07:10 26 Aug 20
Very impressed with the team at DFS. They assisted us with the finance we required for our latest development project. Will be using them again. Highly recommended for businesses looking for private funding.