How do commercial property loans work in Australia?

What is a commercial property loan?

A commercial property loan is finance secured by commercial real estate. That includes offices, shops, warehouses, industrial buildings, medical suites, hospitality venues and mixed-use buildings. It can be used to buy the property, refinance an existing loan, release equity, fund a fit-out or complete a construction project.

The key difference from a home loan is what the lender is assessing. With a home loan, the focus is mostly on the borrower’s income and the home’s value. With a commercial loan, the lender looks at the borrower as well, but also at the property as a business asset: what it earns, who occupies it, how long the leases run and how easily it could be sold or re-let.

Business.gov.au lists property as one of the purposes for which business loans are available, and suggests first considering whether buying or leasing premises suits the business better. That question matters, because buying commercial property ties up capital and brings costs that leasing does not.

What do lenders look at in a commercial property loan?

Lenders weigh four broad areas.

The property. Type, location, condition, age, zoning and how easily the property could be sold. A well-located, flexible building with broad appeal is easier to lend against than a specialised one in a thin market.

The income. For investment property, the rent from tenants. For owner-occupied property, the earnings of the business that will occupy it. Lenders look at the lease terms, the tenants’ strength and how long the income is secure.

The borrower. Financial position, experience, existing debts and credit history. Business.gov.au says lenders consider financial health, ability to repay and the security you can offer.

The exit or refinance plan. For short-term and bridging loans especially, how the loan will be repaid. For longer loans, whether there is a path to refinance if the term ends.

A professional valuation usually sits at the centre of the process. Our guide to commercial LVR and valuations goes through how that works.

Owner-occupier or investment: what is the difference?

Feature	Owner-occupier	Investment
Who uses the property	The borrower’s own business	Tenants paying rent
Main income source for assessment	The business’s earnings	Rental income, plus the borrower’s other income
Lender focus	Strength of the operating business	Strength of leases and tenants
Common risk issues	A struggling business can undermine the loan	Vacancy or a weak tenant can undermine the loan
Related page	Owner-occupier commercial loans	Commercial investment property loans

Some deals mix the two, such as a business owner who occupies part of a building and leases the rest. Lenders often assess these as a blend, and the structure can affect pricing and conditions.

How does property type change the lending?

Lenders do not treat all commercial property the same way.

• Office. Assessed on location, tenant quality and lease length.
• Retail. Looks at foot traffic, anchor tenants and the lease mix. See retail property loans.
• Industrial and warehouse. Often viewed favourably for flexibility, with attention to location and access. See industrial property loans.
• Mixed-use. Blends commercial and residential, with each part assessed. See mixed-use property loans.
• Specialised. Childcare, medical, hospitality, petrol stations and similar. These tend to be valued and assessed more cautiously because the pool of alternative users is smaller.
• Vacant land and development sites. Assessed on zoning, approvals and the plan for the land. See development finance.

Which lenders are comfortable with which property types varies widely. That is one reason a broker’s market knowledge matters.

How are commercial property loans structured?

Structures are less standardised than residential, but common features include:

• Loan term. Often set for a defined period, after which the loan is repaid or refinanced. Terms vary by lender and product.
• Repayment style. Principal and interest, interest-only for a period, or a combination, depending on the purpose and the lender.
• Security. A registered mortgage over the commercial property, sometimes with additional security from directors or related parties.
• Guarantees. Directors, trustees or related entities are often asked to guarantee the loan.
• Covenants. Some lenders attach conditions, such as maintaining certain financial ratios or keeping the property tenanted.
• Early repayment terms. These can matter if the plan is to sell or refinance, so they are worth checking before signing.

Short-term and bridging structures are also common in commercial deals. See short-term commercial loans and commercial bridging loans for how these work when timing is tight.

What are the upfront and settlement costs?

Buying commercial property involves costs beyond the price. The main ones are:

• Transfer duty. Set by each state and territory. Revenue NSW, for instance, says the buyer pays duty on land, interests in land and fixtures, and that duty is due on the earlier of settlement or three months after signing, for business purchases involving land. Victoria is progressively replacing land transfer and landholder duty with a commercial and industrial property tax, according to the State Revenue Office, so the picture there is changing. Check the relevant revenue office for your state.
• GST. Commercial property sales may be taxable, GST-free as a going concern or subject to the margin scheme, depending on the facts. An accountant or lawyer should confirm the treatment, because it affects the cash needed at settlement.
• Legal and conveyancing fees.
• Valuation and lender costs. The lender normally requires its own valuation.
• Due diligence. Building inspections, environmental checks and lease reviews.

Fees and duty are not quoted here because they depend on the state, the price and the deal. A broker can help estimate the total cash needed before you commit.

Illustrative example: an owner-occupier buying their workshop

This is an illustrative scenario only. A mechanic has leased a workshop for years and the landlord is willing to sell. The business is profitable, with consistent bank statements and tax returns. The owner wants to buy the building rather than keep paying rent.

A broker would look at the building’s value, the zoning and condition, and the business’s earnings to service the loan. The owner would normally contribute a deposit and cover duty and costs. Because the business occupies the property, the lender’s focus is on whether the business can reliably carry the repayments. A self-employed owner with limited documents might look at low doc or specialist lenders. The result may be a structure that replaces rent with repayments and builds equity in a property the owner controls.

What if the bank says no?

Banks often decline commercial deals that are a little unusual: a specialised property, a vacant building, a borrower with irregular records, or a tight settlement. A decline is not a verdict on the property.

Alternatives can include:

• Non-bank and specialist commercial lenders, with broader appetite.
• Private first or second mortgages, where the equity in the property does most of the work. See private mortgages.
• Bridging finance where timing is the problem and the exit is clear.
• Adding other security to strengthen the file.
• Restructuring the deal, such as a larger deposit, vendor finance or staged settlement.

None of these are guaranteed, and the cost and terms differ. The right route depends on the specifics.

What mistakes do commercial borrowers make?

• Focusing on the interest rate alone. Terms, covenants, fees and exit flexibility matter as much.
• Underestimating costs. Duty, GST, legal fees and fit-out add up.
• Ignoring the lease. A short or weak lease can hurt value and lending appetite.
• Skipping due diligence. Zoning, contamination and structural problems are expensive surprises.
• Short-term funding without an exit. A bridging loan needs a credible repayment plan.
• Cross-securing everything. Tying several properties together can limit flexibility later.
• Waiting until the contract is signed. Finance conditions and timing should be discussed early.

How does Ownright approach commercial property finance?

Ownright Custom Finance arranges commercial property finance Australia-wide from its Knoxfield, Victoria head office. Director Trevor Scott brings more than 40 years in finance, and the team is built for deals that do not fit a standard template.

In practice that means understanding what the property earns, what the lender will look at, and where the weak points are before the file goes anywhere. It also means knowing which lenders are comfortable with which kinds of property and borrowers, including options most brokers never find. Ownright cannot promise approval, and every loan is priced on the borrower’s circumstances. What it can do is present the deal clearly and find the right fit.

How long do the process and the paperwork take?

Commercial lending involves more steps than a home loan, and each has its own timeline. After the initial discussion, the lender usually orders a valuation, reviews the leases and the borrower’s financials, and has its solicitors check title and security documents. If there are tenants, the lender may want tenancy schedules, rent rolls and outgoings. If the borrower is a company, trust or SMSF, extra structure documents are needed.

How quickly this runs depends on the lender, the property and how fast information arrives. Some deals can move quickly, particularly in private and specialist lending where the focus is the security and the exit. Others take longer, especially where specialised valuations or environmental checks are involved. Because contracts often carry finance dates, it helps to start the conversation before the offer is signed and to ask what a realistic timetable looks like for the property in question.

What documents help a commercial property application?

The package usually includes the contract of sale or property details, current leases and rent schedules, the borrower’s financial statements and tax returns, bank statements, a schedule of existing debts, and identification for all parties and guarantors. For companies and trusts, the relevant deeds and registrations are needed. Our business loan documents checklist covers the borrower-side paperwork in more detail, and a broker can tell you what a particular lender will want beyond that.

When does a short-term or interim structure make sense?

Not every commercial deal needs a long-term loan from day one. Sometimes the property needs repositioning, a lease is about to be renewed, an approval is pending or the borrower is waiting on a sale. A shorter structure can carry the property through that period, with a plan to refinance onto a longer-term loan once the picture is clearer and the lender’s view of the asset improves.

The key to a good short-term structure is the exit. A lender will want to know how it gets repaid: by sale, by refinance or from another identified source. If the plan depends on events outside the borrower’s control, a second option helps. Costs on short-term loans can be higher than on longer-term ones because the lender is taking a view on a transitional asset, so it is worth weighing the total cost of two loans against one before choosing.

Where do you start?

If you are looking at a commercial property, whether to buy, refinance or release equity, start an application with the address, the intended use and a rough idea of the funding needed. We can talk through realistic structures, timing and costs. If a settlement date is already looming, talk to us about your situation as early as you can.