Commercial property can offer higher rental yields and longer leases than residential property. Whether you are buying premises for your own business or investing in an office, shop, warehouse or medical suite, commercial lending works differently from a home loan.

How commercial loans differ from home loans

• Larger deposits. Most lenders lend up to 60% to 70% of the property value, sometimes up to 80% for strong applicants and property types.
• Shorter terms. Loan terms are often 15 to 25 years, sometimes with periodic reviews.
• Higher rates and fees than residential loans, reflecting the higher risk.
• The property's income matters. Lenders look closely at the lease, tenant and rent.

What lenders assess

The lease

Lenders like long leases with reliable tenants. A national tenant on a ten-year lease is viewed very differently from a vacant shop. They will look at the weighted average lease expiry (WALE), rent reviews and who pays outgoings.

Interest cover

Many lenders calculate an interest cover ratio: how many times the net rent covers the loan interest. A common minimum is around 1.5 to 2 times, though it varies.

The property type and location

Standard offices, shops and industrial units in established areas are easier to finance. Specialised properties, such as service stations or childcare centres, may need specialist lenders and larger deposits.

You

Your income, assets, other debts and credit history still matter, especially if the property will be owner-occupied or is vacant.

Buying premises for your own business

Owning your premises means you control your space and pay off an asset instead of paying rent. Lenders assess your business's financials to make sure it can afford the repayments. Some business owners buy through their SMSF and lease the premises to their business. Read our guide to SMSF property loans.

Costs to budget for

• Stamp duty, which can be significant on commercial property
• GST: many commercial purchases involve GST, although the sale of a leased property can often be treated as a going concern. Get advice before signing.
• Legal and due diligence costs, including reviewing leases
• Valuation fees, which are higher for commercial property
• Building inspections and environmental reports for some property types

Using residential equity

If you own residential property, you may be able to use its equity to boost your deposit, which can help you access better rates or a higher overall loan amount.

Plan your commercial purchase

Commercial lending varies widely between banks and specialist lenders. We compare them for your property and business. Learn about commercial property loans or book a free call.

This article is general information only and does not take into account your objectives, financial situation or needs. Government schemes, tax rules and lender policies change, so check current details before acting. Propple Pty Ltd is an Australian Credit Representative (537767) of AFSL 384704.