Commercial Loans – Everything You Need to Know

Are you are looking to buy your dream premises that’s perfect for your new or existing venture? Then it is a wise move to take a long look at the landscape of Aussie commercial property loans. These are quite distinguished from residence and home loans and have different criteria that can be quite eye-opening. A commercial loan, essentially a mortgage loan secured by a commercial property, is required if you are purchasing office spaces, restaurants, or income-generating accommodation premises such as a hotel or holiday park. Whether you are an owner/occupier, or an owner/investor, your status will affect your assessment by the lender.

Documentation Requirements

The main documentation requirements in the application for a commercial loan in Australia vary depending on the lender, the type of commercial property being financed and the financial structure of your business. Employing a commercial finance broker in Brisbane and most major territories can be useful in getting your paperwork right and save you time and hassle while you’re at it. Most Australian territories require your financial statements, financial documentation, business plans and projections, property documents and personal guarantor information. Additionally, you may be required to submit proof of business insurance, details of existing loans, bank statements and business agreements.

How Much Can You Borrow

Roughly speaking, you can expect a 60 per cent deposit for standard non-specialised assets. However, commercial property loans are highly subjective and vary widely depending on the lender, the transaction, and the investor. Lenders may even go up to 75 per cent loan to value (LVR) or borrowing power, but you are not likely to get away with more than that. Technically speaking, commercial investors can borrow up to 100 per cent of a property’s value with a guarantor.

Other Features

Commercial investors should expect loans to be more complicated and complex than that of residential finance. Considering the following points is important:

– Lender’s Mortgage Insurance

The luxury of borrowing 90 per cent or more of a property’s value is only available in the residential sector. In the commercial landscape, there is no Lender’s Mortgage Insurance. It means a much higher deposit.

– Shorter Loan Period

Most lenders offer only a 15-year loan term on commercial properties. Investors shouldn’t expect terms of more than 20 years.

– Higher Rates and Fees

Commercial property rates are likely to be higher based on the risk that the lender wants his interests protected in the event that something goes wrong. Commercial investors will also have to deal with increased bank fees.

– Lender Reviews and Changes

Loan duration reviews and potential increased rental prices will depend on your lender and asset class. As a general rule, a property’s rental rate should be based on market value, with industry experts advising investors to carefully consider how and when their rates will be reviewed.

– General Security Agreements

A general security agreement (GSA) is a legal document that allows a lender to take security over a borrower’s assets in the event that the borrower defaults on the loan. This can include commercial properties, vehicles, business assets and other assets. This means that if the borrower defaults on the loan, the lender has the right to seize the assets listed in the GSA in order to recover the loan amount. In some GSAs, to be approved, owners sometimes even put their own residence in the GSA.

Special Features

Some commercial loans may have special features, such as interest-only payments or the ability to make extra repayments without penalty. These features can make the loan more flexible. In addition to this, some commercial loans may also offer a line of credit facilities, which can help your business manage its cash flow.

Summary

Understanding commercial loans in Australia is crucial for any investor or business owner stepping into the commercial property landscape. With proper due diligence, preparation, knowledge and the support of professional guidance, you can secure the finance you need under the best possible terms. Thorough research and preparation go a long way in ensuring a smooth application process and successful investment. Good luck!