Commercial loans are secured by a commercial or residential property and the purpose is to buy, refinance or cash out equity for commercial purposes such as buying another physical commercial property.
Business loan can be unsecured or secured by a commercial or residential property and the purpose can be for business acquisition, purchase, expansion, renovations, fit out or cash flow.
Most commercial and business loans are done on a case-by-case basis as, different lenders have different appetites to what type of deal they are looking for; this appetite varies from banks to banks. One bank may be comfortable to do the deal, while another may reject the deal simply because they don’t like that industry.
Commercial loans
Generally commercial loans which are secured by a commercial security attract a lower loan term of 5-25 years, but it is possible to still obtain a 30 year loan with certain lenders. Interest rate can be more expensive then a residential loan, but not by much.
It is possible to obtain residential rates for a commercial purpose.
There are generally two (2) types of borrowers who would apply for a commercial loan:
1. Businesses owners – Company, solo traders, SMSF (self-managed super funds) or ABN holders who are buying a commercial property such as an office to expand their business or stop paying rent.
2. Investors – This can be an ABN holder, company or private/personal investor, SMSF- Commercial properties attracts a higher rental yield then residential properties and this is where the structure of the commercial loan would make a big difference in the overall return.
Consider as standard security by most lenders.
Business loans
All business loans are assessed on a case by case basis, as every situation and industry are so different.
The standard business loan purposes are:
- Start/buy a new business- franchise
- Buy an existing business
- Cashflow
- Expansion of existing business
- Fit out and renovations
- Pay for invoice and GST
- Tax debt
- Acquisition
- Buy out an existing director or partner
- Buy a rent roll
- Fund projects
Business loans are short term loan ranging from 1-5 years. Longer loan terms can be provided if it’s secured against a physical commercial or residential property.
| Industries / Type | Lender 1 | Lender 2 | Lender 3 |
|---|---|---|---|
| Advertising Agencies |  | |  |
| Asset Management | | | |
| Auto Dealership, repairs, service and mechanics | | | |
| Accommodation / Motel | | | |
| Aged Care and retirement villages | | |  |
| Business service - Accounting, Management, Planning etc.. | | | |
| Business Expansion | | | |
| Brothel | | | |
| Clubs / Pubs | | | |
| Caravan Park | | | |
| Computer - Repairs and sales | | | |
| Cleaning service and Cleaning product sales | | | |
| Drugs - Development, Retail , sales etc | | | |
| Dental | | | |
| Electronics - Sales, Repair and development | | | |
| E-Business - Service | | | |
| Farm | | | |
| Food - Whole sales, Retail sales and development | | | |
| Food and beverage – Bars, Drinks, Bubble tea, café | | | |
| General Entertainment - Gaming, Snooker, Arcade | | | |
| Home improvement - Hardware stores, service and builders | | | |
| Hospitals | | | |
| Internet service provider | | | |
| Insurance Broker and service | | | |
| Investment Broker and services | | | |
| Jewellery Store or Marker | | | |
| Long distance carrier | | | |
| Money centre - Private Banks | | | |
| Marketing service, Management and development | | | |
| Muti-Development - Construction of block of units or properties | | | |
| Muti-Property ( Existing) - Block of units under one title, Townhouses etc... | | | |
| Movie production, Music production and Photographic Services | | | |
| Medical clinic and service- (All types ) | | | |
| Management rights | | | |
| Optometrists and eye care | | | |
| Pharmacy | | | |
| Publishing - Private, freelance and corporate | | | |
| Property Management- real estate, Strata Management | | | |
| Parking stations- car parks | | | |
| Office | | | |
| Rental and leasing services - Car, Furniture’s, goods etc... | | | |
| Restaurants | | | |
| Retail shop | | | |
| Recycling and Population management- Solar power, Wind, Water and Green Business | | | |
| Rent Roll | | | |
| Self Manged Super Fund ( SMSF) | | | |
| Security - Service and sales | | | |
| Sports - Clubs, retail and service | | | |
| Storage Facilities | | | |
| Specialty investments - Gambling Machines, vending Machines, ATM's etc... | | | |
| Staffing and Outsourcing Services- HR and Training | | | |
| Scientific development and research | | | |
| Tobacconist | | | |
| Textile- Clothing and footwear and accessories | | | |
| Telecommunication - Resellers, Service, Sales, Repairs, Networking etc.. | | | |
| Taxi Plates | | | |
| Workshop | | | |
| Warehouse | | | |
| Viet Clinics | | | |
Myth busters
There are certain misperceptions and out of date information floating around when it comes to commercial loans, here are the common myth answered;
- Commercial loans are available to EVERY borrowers NOT just ABN holders/ company/ trust HOWEVER certain lenders may have restriction on borrowers type.
- Commercial loan is available to full doc and low doc borrowers ( no doc also available, but not as common).
- Commercial loans are available on ALL transaction even for standard residential properties as it’s up to the commercial credit department to accept the deal as required- however commercial loans is not recommended if not required.
- The standard Max LVR for Commercial loans is 70%. With some extending this to 80% for certain industries.
- LMI (insurance) is not available for commercial loans, hence why the Max LVR is 80%.
- Commercial loans generally speaking are more expensive in terms of rates and fees
- Certain industry can go to 95% LVR such as medical professionals.
- Commercial loans provides a lot more flexibility in how credit will accept and look at your overall deal- Even if a residential lender has rejected your deal, a commercial lender may accept it.
- Construction of Block of four (4) units or town houses is normally done as a commercial loan as it provides a lot more flexibility, but a residential loan is possible for the right purpose for the block of four.