If you're considering buying commercial property for your consultancy or side business, the lending criteria work differently to residential mortgages.
Most lenders assess commercial property loans based on the income generated by the property or the business occupying it, not just your personal PAYG salary. That changes how much you can borrow and what documentation you'll need.
How Commercial Property Finance Differs from Residential
Commercial property finance evaluates the asset's ability to generate income, not just your borrowing capacity. Lenders typically look at the lease in place, tenant quality, property type, and your equity contribution. The loan amount is capped by the commercial LVR, usually between 60% and 80% depending on the property type and your financial position.
Consider a cybersecurity consultant buying a small office in a suburban business park for $600,000. The lender approved 70% LVR, requiring $180,000 as deposit plus around $25,000 for stamp duty, legal fees, and valuation. The property had a five-year lease with a national franchise tenant, which strengthened the application. The lender structured the loan with principal and interest repayments over 15 years at a variable interest rate, with the option to fix a portion if rates moved.
If you're working with a commercial finance and mortgage broker, they'll typically present options from multiple lenders who handle commercial real estate financing, including those who lend to professionals buying their first business premises.
Secured vs Unsecured Commercial Loans
A secured commercial loan uses the property as collateral, which allows for a higher loan amount and lower interest rates compared to unsecured options. Most commercial property acquisitions are secured against the asset being purchased. Unsecured commercial loans are typically smaller facilities used for equipment, working capital, or short-term needs where property isn't involved.
When buying commercial property, you'll almost always use a secured loan. The property you're purchasing becomes the security, and if the loan structure includes cross-collateralisation, you may also use equity in your residential property to increase borrowing capacity or reduce the commercial LVR.
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Loan Structure and Repayment Flexibility
Commercial property loans can be structured with flexible repayment options depending on cash flow and how you intend to use the property. If you're occupying the space yourself, lenders assess serviceability based on your business income and personal earnings. If you're leasing it out, rental income becomes the primary serviceability measure.
Some lenders offer redraw facilities or a revolving line of credit linked to the loan, which lets you access paid-down principal for business expenses or equipment upgrades. Interest-only periods are common in the early years, particularly if the property needs fit-out work before generating full rental income. Fixed interest rate options are available but typically for shorter terms than residential mortgages, often one to five years.
Consider a scenario where a consultant purchases a warehouse on strata title in an industrial estate, intending to use part of it and lease the remainder. The lender structured the loan with a three-year interest-only period to allow for fit-out and tenant placement, followed by principal and interest repayments. A redraw facility was included, which the borrower later used to finance equipment for the business without taking a separate loan.
Commercial Property Valuation and LVR Limits
Commercial property valuation is more detailed than residential and considers factors like tenant quality, lease length, location, zoning, and income potential. Lenders cap the loan amount based on the commercial LVR, which varies by asset type. Office buildings and retail properties in metro areas may support up to 80% LVR if leased to quality tenants. Industrial property loans and warehouses often sit around 70%, while vacant land or properties without leases may be capped at 50% to 60%.
The valuation also affects loan approval time. Commercial valuations take longer and cost more than residential, often between $2,000 and $5,000 depending on property size and complexity. If you're buying commercial land or a property requiring development, expect the lender to factor in the end use and potential income when determining how much they'll lend.
Pre-Settlement Finance and Progressive Drawdown
If you're buying an off-the-plan commercial property or commissioning a build, lenders can arrange progressive drawdown as construction milestones are reached. This is common with construction loans for tech industry workers who are developing commercial premises. Pre-settlement finance may also be available if you've exchanged contracts but need funds before settlement to secure another opportunity or manage cash flow.
These structures suit buyers who are expanding their business footprint or acquiring multiple assets in a short period. You only pay interest on the amount drawn, not the full approved loan, which reduces costs during the build phase.
Interest Rates and Loan Terms
Commercial interest rates are typically higher than residential by 0.5% to 1.5%, depending on the lender, LVR, and property type. Variable interest rates are more common, but you can fix part or all of the loan if you want certainty. Loan terms are usually shorter than residential mortgages, often 10 to 15 years, though some lenders offer up to 30 years for owner-occupied commercial property with strong serviceability.
If your income includes commission, bonuses, or RSUs, some lenders will include those in serviceability if documented correctly. That's particularly relevant for cybersecurity specialists with variable or performance-based earnings who need to demonstrate stable income over time.
Refinancing and Accessing Equity for Further Investment
Once your commercial property has appreciated or the loan balance has reduced, you can refinance to access equity for further acquisitions or business investment. Commercial refinance options allow you to increase the loan amount, switch lenders, or restructure repayment terms. If you're looking to buy additional properties or expand operations, releasing equity from an existing asset can provide the deposit for the next purchase without selling.
This approach is common among professionals building a small property portfolio while maintaining their primary income. If you've built equity in residential property as well, you may be able to leverage that alongside your commercial asset to increase borrowing capacity.
Call one of our team or book an appointment at a time that works for you to discuss how commercial property finance can fit your situation.
Frequently Asked Questions
How much deposit do I need for a commercial property loan?
Most lenders require 20% to 40% deposit depending on the property type and tenant quality. Office buildings with long leases may support 20% deposit, while industrial properties or vacant land typically need 30% or more.
Can I use my residential property as security for a commercial loan?
Yes, you can cross-collateralise your residential property to increase borrowing capacity or reduce the deposit required for the commercial purchase. This is common when equity in your home exceeds what you need for a commercial deposit.
What income do lenders assess for commercial property loans?
If you're leasing the property, lenders primarily assess rental income and tenant quality. If you're occupying it yourself, they assess your business income and personal earnings, including salary, bonuses, and dividends if applicable.
How long does commercial property finance take to approve?
Approval typically takes two to four weeks depending on the lender, property type, and valuation complexity. Commercial valuations take longer than residential and may add a week or more to the process.
Can I fix the interest rate on a commercial property loan?
Yes, most lenders offer fixed interest rate options for one to five years. You can also split the loan between fixed and variable if you want partial rate certainty while retaining flexibility for additional repayments.
