What type of loan is best for commercial property?

 

The National Consumer Credit Protection (NCCP) Act doesn’t regulate commercial property loans in Australia that are utilized for some trade or investment purposes, except for residential investment properties. So, maximum commercial borrowers need not have the same protection as home buyers. 

 

The primary objective of your commercial property loan will affect the way your loan is evaluated: 

 

• Working Capital (High Risk): Funding the day-to-day activities of your business or liquidity shortfalls.  

 

• Owner-Occupied (Medium Risk): Purchasing or refinancing a commercial property that is leased to or occupied by your business. 

 

• Investment (Low Risk): Purchasing or refinancing a commercial property that will be leased. 

 

• Other Purposes: All other commercials, business, or investment purposes are reviewed on a case-by-case basis, e.g., purchasing an insurance broking practice. 

The purpose isn’t determined by what the commercial property loan is secured on, but what the loan is utilized for. 

 

Features of Commercial Property Loan 

 

• Term: Up to 15 years or 30 years for residential security.  
• Full Doc: Companies, individuals, trusts, and self-managed superannuation funds are acceptable. 
• Interest Rate Type: Fixed, variable, or bank bill facilities. 
• Interest-Only: Up to 5 years. 
• Redraw: Permitted for amounts that you have pre-paid. 
• Additional Repayments: Permitted on variable loans. 
• Line of Credit (LOC): Procurable at higher interest rates. 
• Offset Accounts: Usually unavailable. 
• Capitalised Interest: Procurable for development or land sub-division funding. 

 

Every lender has its target market, products, and pricing. It is necessary to match with the lender that can fulfil your requirements. This is where experienced commercial mortgage brokers in Australia can offer assistance. 

 

Choosing a Lender 

 

First Step: Select the Right Lender 

 

You need to research which lender specialised in the type of finance that you are seeking. There are one or two banks that always dominate each domain within the commercial funding market. 

 

So, there are different banks for different client types: 

 

• Highly-geared commercial property investors.  
• Low-risk commercial property investors. 
• Start-up businesses. 
• SMSFs. 
• Corporate borrowers. 
• Developers. 

You need to choose a lender with more experience in lending to people with properties such as yours. There’s every possibility that your commercial property loan gets approved. 

 

Second Step: Present a Strong Case 

 

Apart from just filling in the application form and providing the documents that they ask for, you must highlight the strengths of your application and present your situation in such a manner that the bank is compelled to receive it. 

 

Most banks follow the templates and forms that they wish to be filled in. A few banks like to see the maximum possible information, whereas, with others, it is ideal to provide the bare minimum. 

 

Maximum mortgage brokers have the experience to work in a bank’s credit department, approving and declining the applications for the best online home loans in Australia.  

 

Third Step: Mitigate their Concerns 

 

If the bank doesn’t approve your application right away, then you have to negotiate and find out whether you can resolve the problem. 

 

There are three ways to do this: 

 

• Share extra information to prove that their concern is unreasonable. 
• Modify your situation to match their lending guidelines in a better way. 
• Negotiate budget to match the risk of your application. 

 

Getting a low-interest rate 

 

Lenders with lower risk appetites tend to have lower interest rates. A lot of lenders have a risk matrix to apply for pricing a larger commercial property loan. This risk matrix will take the following into account: 

 

• Loan to Value Ratio (LVR).  
• Location of the security property. 
• Current and future state of the local property market. 
• Condition and appeal of the security property. 
• Diversification of the property portfolio. 
• Length of time until the lease(s) expire. 
• Level of interest cover. 
• Asset position of the borrower. 
• Strength of the tenant(s). 
• Management experience / track record. 

 

Inference 

 

Be careful who you are doing business with. Your lender will be your business partner. The goodwill and the reputation of your lender make a huge difference. For small transactions with large lenders, you enjoy less bargaining power to negotiate particular terms. On the contrary, with a larger commercial loan, you can negotiate a more favourable loan contract.