Commercial loans for property that earns, houses or builds a business

What is a commercial loan, in plain terms?

A commercial loan is borrowing secured against property that is used for business or held as an investment. The security might be the office a firm operates from, a row of shops that return rent, a warehouse on an industrial estate, a pub, a childcare centre or a vacant block waiting for approval. The purpose might be buying, refinancing, refurbishing, building or simply freeing up equity for something else.

What sets this territory apart from home lending is that the lender is reading three things at once: the building, the income it produces (or will produce) and the people behind it. A tidy residential loan can lean on a salary and a house. A commercial file leans on leases, trading accounts, zoning, vacancy and the borrower’s record with projects like it. That is why the same property can get a warm reception from one lender and a flat no from another.

Who do commercial loans suit?

The category is broad, and the borrower groups are quite different from one another:

• Business owners buying the premises they trade from instead of paying rent to a landlord
• Investors adding shops, offices, warehouses or medical suites to a portfolio
• Developers funding land, approvals, construction and the gap before sales
• SMSF trustees acquiring business real property within the fund’s rules
• Operators of specialist assets, from service stations to self storage, who need lenders that understand the trade
• Owners of an existing commercial loan that has become expensive, awkward or due for renewal

If you sit in more than one group, which is common, the structure matters even more. Our commercial property loans page is the best general starting point, and commercial real estate loans covers the same ground from the investor’s side.

How do lenders look at a commercial deal?

Every lender has its own appetite, but the questions tend to rhyme:

The property. Location, condition, zoning, size, how many buyers or tenants would want it and how easily it could be sold. A well-located, flexible building is easier to fund than a single-purpose asset in a thin market.

The income. For investment property, the lease terms, tenant quality, remaining term and rent review pattern. For owner-occupied property, the trading business that will carry the repayments.

The borrower. Experience, existing debts, tax position, credit file and how the borrowing entities are set up. A tangled structure is not a deal-breaker, but it needs a tidy explanation.

The loan-to-value ratio. The ratio of the loan to the property’s assessed value, usually set by an independent valuation. For a plain-English primer, our guide on commercial LVR and valuation walks through how it works.

The exit. Lenders like to know how the loan ends: sale, refinance, completion of a project or a steady run of repayments. That is especially true of short-term money.

What are the main commercial finance options?

Different needs call for different tools, and many deals use more than one. The table gives a quick map; the sections after it go through each product.

Need	Typical product	Usually sits with
Buy premises to trade from	Owner-occupier loan	Banks and specialist lenders
Buy an income-producing property	Investment property loan	Banks, non-banks, private lenders
Bridge a timing gap	Bridging or short-term loan	Private and specialist lenders
Build or develop	Construction or development facility	Specialist and private lenders
Top up funding behind a first mortgage	Mezzanine or second mortgage	Specialist and private lenders
Replace an existing facility	Refinance	Banks, non-banks and private lenders
Buy through super	SMSF commercial loan	Lenders with SMSF programs

Why do banks decline commercial deals that are otherwise sound?

It surprises many borrowers, but a no from a bank is often a comment on fit rather than quality. Common reasons include a property type the lender does not like (single-purpose buildings, regional locations, heritage or mixed zoning), a short settlement date, a borrower with unpaid tax or a patchy credit history, a trust or company structure the credit team cannot easily read, or a deal that is simply too small or too unusual for the bank’s process.

None of these automatically rules out finance. A non-bank lender may be comfortable with the asset. A private lender may care mostly about equity and the exit. A temporary structure can sometimes clean up the issue that caused the decline, and a longer-term lender can take over afterwards. If that sounds familiar, commercial loans with bad credit and the guide on what to do if your loan is declined are good next reads.

Should I choose short-term or long-term finance?

Short-term finance is built for speed and flexibility, and it is priced to reflect that. Long-term finance is built for stability and lower holding costs, and it comes with more process. Neither is better in the abstract. The question is what the money has to do and for how long.

A buyer who has found a bargain with a tight settlement window may use a short-term commercial loan now and refinance once the paperwork is ready. An investor with a stable tenant may go straight to a long-term facility. Where timing is the main problem, commercial bridging loans lay out how the bridge, the exit and the costs fit together, and the guide on bridging loan exit strategies covers the planning side.

Which loans suit buying a place to trade from?

Paying rent builds someone else’s wealth, and plenty of owners eventually decide to buy the building their business sits in. Owner-occupier commercial loans are built around that decision, with the trading business carrying the repayments. Lenders look closely at how the business has performed over a few years, and they often prefer the buyer to hold the property in a structure that matches the way the business is run.

For particular trades, the property itself shapes the assessment. Service station property loans take fuel supply arrangements and environmental considerations into account, while pub and hotel loans hinge on licence, trading history and the strength of the operator. Tourism and caravan park loans are read against seasonality and site mix, and self storage property loans turn on occupancy and how quickly the business can grow.

What about the investor’s side: shops, offices and warehouses?

Investors tend to be asking a different question: does the rent comfortably carry the debt, and what happens when a lease ends? Commercial investment property loans cover the general case. Then come the asset-specific pages:

• Retail property loans for shops, strips and neighbourhood centres, where tenant mix and foot traffic count
• Industrial property loans for warehouses, factories and logistics units, where clear heights, access and location drive value
• Mixed-use property loans for buildings with shops below and homes or offices above, which lenders treat in their own way
• Medical centre property loans for clinics and allied health suites, where long-term tenants and fit-out can be a strength
• Childcare centre property loans for early learning properties, assessed on operator quality, licence and occupancy
• Aged care property loans for residential care and retirement-related assets, a niche with a short list of interested lenders

Each of those niches has lenders who like them and lenders who avoid them, which is why a broker who knows the field can save weeks.

How does SMSF commercial property lending work?

Many self-managed super fund trustees buy the premises their business uses, or a commercial investment, through the fund. SMSF commercial property loans sit in a corner of the market where the lending side and the superannuation side must line up. The fund’s trust deed and investment strategy have to allow the purchase, and the lender will set its own conditions around the borrowing structure and the security. Specialist advice on the super rules belongs with the fund’s adviser and accountant, and we focus on finding a lender whose programme fits.

When is a bridging or short-term loan the right tool?

Timing gaps are a constant in property. A purchase has to settle before an existing building sells, a lease is about to be signed but is not quite there, or a bank is taking months to complete a process the vendor will not wait for. In those moments, a commercial bridging loan or a short-term commercial loan can hold the position. Residual stock loans apply the same thinking to developers with unsold apartments or townhouses at the end of a project.

The point of a short-term facility is the exit. A sensible plan names how it will be repaid, whether through a sale, a refinance or a settlement, and allows some slack for delays. Our guide to how fast private lending can settle explains what drives the timeline.

What finance exists for building, subdividing and developing?

Development is where the structures get layered. Development finance covers the whole project, usually combining land funding, construction draws and sometimes equity from a partner. Commercial construction loans are paid out in stages against progress, and subdivision finance suits owners cutting a site into lots. Property refurbishment finance is for buying and improving an existing building, or renovating to lift its income or resale value.

Where equity is thin, mezzanine finance can fill part of the gap behind a senior lender, and joint venture property finance suits projects shared between a landowner, a builder or a capital partner. First-time developers might start with the guide on development finance for first-time developers and the explainer on construction loan progress payments.

Can an existing commercial loan be refinanced?

It can, and that is a very frequent reason people pick up the phone to us. A facility may be rolling to the end of its term, a lender may have changed its policy, or the property may have gained value and rent since the loan began. Commercial loan refinance looks at moving to a better-fitting lender, consolidating several loans or releasing equity for the next project. If the borrower’s credit file has taken some knocks along the way, commercial loans with bad credit explains how lenders weigh past problems against current strength.

Where do I start if my situation does not fit a box?

Plenty of real deals do not match a neat product name. A landowner may want to release equity while a development is pending, or an operator might hold a property in one entity, run the business in another and owe the tax office a payment plan in the middle. Those are the files where a conversation helps more than a brochure. Tell us about your commercial funding plans and we will tell you honestly which lender types are worth approaching, and in what order.

What does a real-world commercial scenario look like?

Illustrative scenario only, with no real names. A small manufacturer has rented a unit on an industrial estate for years and finds the landlord is selling. Buying it would stabilise the business, but the company’s tax payments are on an arrangement with the ATO, the bank’s turnaround would take longer than the vendor’s contract allows, and the owner wants the building held in a separate property entity.

A workable path might involve a short-term facility to secure the purchase on time, a clear plan to clean up the tax position during the first months, and a handover to a longer-term owner-occupier commercial loan once the file is tidy. Each step is simple on its own. The skill is in sequencing them so none of them blocks the others.

What mistakes cost commercial borrowers the most?

• Signing a contract with a short settlement period before knowing which lender suits the asset
• Assuming the bank’s valuation will match the price paid, then discovering a gap on the day
• Using short-term money without a written exit and then running out of runway
• Leaving tax debts, unlodged returns or old defaults unexplained in the file
• Applying to several lenders at once and leaving a trail of enquiries on the credit file
• Mixing personal and company finances in a way that makes serviceability hard to read
• Skipping the lease review and finding a tenant’s break clause late in the process

Most of these are avoidable with a short planning conversation before anything is signed. Our guide on why you should not apply for loans everywhere explains the credit file angle in detail.

What documents should be ready before applying?

Having paper organised makes everything faster and often improves the quality of the offers that come back. A typical commercial file includes:

• Contract of sale or details of the existing property and its title
• Current leases, rent schedule and outgoings for investment property
• Financial statements and tax returns covering the past two to three years, for the borrower as well as any connected entities
• Recent BAS, a year-to-date profit and loss and an asset and liability schedule
• Bank statements for the borrowing entities
• Details of existing loans and the approximate payout figures
• For projects: plans, permits, a costed budget, builder’s contract and a project timeline

The guides on what documents you need for a loan, getting your BAS and financial statements and becoming loan ready cover where to find each item.

How do property types change the lender’s thinking?

The asset itself pushes lenders towards or away from a deal. A multi-tenanted industrial property in a strong precinct sits at one end of the comfort scale. A single-purpose building tied to one operator, with few other uses, sits at the other. In between lie offices, which depend heavily on location and vacancy, and mixed-use buildings, which depend on how the shop and residential components are valued. Understanding where your asset sits helps set expectations for deposit, documentation and timing. It also explains why the right lender for one commercial deal can be entirely wrong for the next.

How does Ownright approach commercial finance?

Ownright Custom Finance is built around solutions. With over four decades in finance behind him, director Trevor Scott heads a team placing commercial loans nationwide, whether it is one suburban shop or a staged development. We begin with the story behind the deal, because the numbers rarely make sense without it. Then we look at which lenders genuinely suit the asset, the borrower and the timeline, including lenders and structures that many brokers never mention.

That might mean a conventional long-term loan, a bridge followed by a refinance, a second mortgage behind an existing lender, or a combination across several entities. Sometimes the best advice is to wait two weeks and tidy one document before approaching anyone. We would rather say that than send a file out too early. It is a straightforward promise to explore everything, and if Ownright cannot find the solution, no one can.

What should I read next?

If you are deciding between short and long term borrowing, start with how commercial property loans work. If you suspect the structure is the sticking point, the guide on what is loan serviceability is useful. Anyone weighing a second charge over an existing property might read first versus second mortgage ranking.

Sounds like you are after commercial finance that fits the deal?

You have the property or the plan, and we have the experience to match it to the right lender. When you are ready, see if you qualify for commercial finance or call us on 03 7043 7233 and talk it through with a human. We arrange commercial loans from Knoxfield, Victoria, for borrowers in every state and territory.