Considering your finance options for a commercial property investment?
There is a lot to think about.
While you may have been through the loans process before, a commercial property loan is a whole different ball game.
Commercial investments are complex – and can be higher risk because they are more susceptible to slumps in the economy.
This means getting finance can be a daunting process for even the most experienced investors.
So, we’ve created this guide to answer some of the key questions facing commercial property investors who are going through the loan application process.
Borrowing power for a commercial property loan
There are several differences between an investor buying commercial property and someone investing in a residential property.
Some institutions allow customers to borrow as much as 95% of a residential property’s value.
However, for a commercial loan – most lenders require a minimum contribution of 30%.
The amount you can borrow also depends on the property price. For example, acquisitions under $1 million can sometimes be up to 80% of the purchase price. However – anything over $1 million is normally set at 65-75% of the purchase price.
How much an investor can borrow is dependent upon many factors including property price, the location, the type of property, its potential or proposed uses, or whether any other security like a home is used to secure the purchase.
Another important note – When purchasing commercial property, lender’s mortgage insurance is not available.
What information will the bank need for your commercial property loan application?
When lenders are assessing your application, some of the key question’s lenders will be asking are –
- Will the property be able to generate a rental income from tenants?
- Will it be owner occupied or investment?
- Is the property able to be used for different businesses?
- Is the property specialised in any way? E.g. a petrol station
Other information you will need to provide is:
- details of any existing lease
- demonstrate how you will afford to maintain the property and make repayments (if it doesn’t have a tenant)
- details of income deposit amount (and equity from other properties, if relevant)
- details of the property itself, including the asset class, location and valuation.
A finance broker will help you get all this information together and make sure you have everything you need for a smooth approvals process.
Securing the best deal
Lenders do not always clearly publicise their rates for commercial property loans.
In fact, the specific terms on commercial property loans can almost always be negotiated.
The rate for your loan will be impacted by risk, which is determined by things like the location of the property and demand for that type of property.
Generally commercial property loans also have shorter loan terms, usually between two and 15 years. Although some lenders will now entertain loan terms longer than 15 years especially if they have additional security like a residential investment property or the family home.
Having a stable tenant that has a lease in place and will stay in the space for another few years is something that could increase your chances of approval when buying a traditional commercial property.
How a Finance Broker can help with your commercial property loan
A broker who specialises in commercial property loans can
- ensure you have everything you need before making an application
- negotiate on your behalf
- confirm rates and terms
They will also have the right relationships with key lenders and can recommend lenders according to your situation, as they will know the ins and outs of each lender’s different criteria and loan options.
If you are currently looking to purchase a new commercial property or simply wanting to give your current commercial loan a health check please give us a call.
Our Finance Broker Justin will go through the process – and how we can help you.