Commercial property can provide opportunities for business owners, investors and property developers, but financing commercial real estate is often more complex than obtaining a standard residential home loan.
Whether you are purchasing an office for your business, investing in a leased commercial property or funding a larger development, choosing the right commercial finance structure is an important part of the process.
Understanding the different types of commercial property loans can help you determine which option may suit your project.
What Is a Commercial Property Loan?
A commercial property loan is finance used to purchase, refinance, develop or construct property that is primarily used for business or investment purposes.
Commercial properties can include offices, warehouses, factories, retail premises, industrial units and other business-related real estate.
Unlike standard residential lending, commercial loan applications may be assessed using a wider range of factors. These can include the property’s value and location, business financial performance, rental income, lease arrangements, deposit or available equity, and the overall strength of the proposed transaction.
Standard Commercial Mortgages
A standard commercial mortgage can be used by businesses purchasing premises from which they intend to operate.
For example, a business currently renting an office, warehouse, factory or retail location may decide to purchase its own premises.
Owning commercial property can provide greater control over how the premises are used while potentially creating a long-term property asset for the business or property owner.
Commercial mortgages may also be used by investors purchasing commercial property to lease to another business.
Because commercial lending policies vary considerably between lenders, comparing different options can be particularly valuable.
Lease Doc Loans
Lease doc loans can provide an alternative finance solution for eligible commercial property investors.
Instead of relying primarily on the borrower’s complete financial statements or tax returns, certain lenders may assess the application using the income generated by an existing commercial lease.
The rental income, lease terms, tenant profile, property value and other factors can form an important part of the lender’s assessment.
This type of lending may be useful in situations where an investor has a strongly leased commercial property but conventional income documentation does not provide the most suitable way to demonstrate the strength of the transaction.
Eligibility and documentation requirements vary between lenders, so each application needs to be considered individually.
Development and Construction Finance
Commercial development projects require specialised funding.
Development and construction finance can be used for projects such as industrial estates, apartment developments, warehouses, commercial buildings and retail units.
Unlike a straightforward property purchase, development finance may involve multiple stages and progressive drawdowns as construction proceeds.
Lenders may assess factors including the project’s total cost, expected end value, planning approvals, builder experience, development experience, pre-sales or leasing arrangements and the borrower’s contribution.
Because these projects can involve substantial capital and longer timelines, having an appropriate finance structure in place before construction begins is critical.
What Do Commercial Lenders Consider?
Commercial lending is often assessed on a case-by-case basis.
A lender may review the property’s location and condition, proposed use, loan-to-value ratio, business or rental income, lease terms and the borrower’s financial position.
For development projects, feasibility and exit strategy may also play an important role.
This means a loan that works well for one commercial property transaction may not necessarily be suitable for another.
Finding the Right Commercial Finance Solution
Commercial property finance offers more flexibility than many borrowers initially realise, but that flexibility also means there can be significant differences between lenders.
Understanding the available options can help you structure finance around the property, your cash flow and your longer-term objectives.
We work with business owners, commercial property investors and developers to explore finance solutions for a range of commercial property requirements.
Whether you are purchasing premises for your own business, investing in a tenanted property or planning a larger development, we can help you understand the available lending options and the requirements involved.
Planning a commercial property purchase or development? Speak with our team to explore commercial finance options for your next project.