Renting a commercial premises can be expensive and risky for some businesses. Take control of your business destiny by securing your own commercial premises and getting out of the rental rut. We can help you confidently secure finance for a Commercial Owner Occupied property with a range of competitive loan options.
Why buy a Commercial Property rather than rent?
There are several reasons clients choose to buy their own business premises:
- Control – you decide what you want to do with the property and do not get kicked out
- Capex – make the most of your fit out given there is no lease expiry date
- Cash flow – loan repayments may be lower than rental repayments
- Conditions – determine the terms of the lease, and where rent is tax effectively paid to
- Capital return – get the benefit of the growth in value of the property
When is a good time to buy your own Commercial Property?
Just like buying your own home, there is no ‘perfect time’, but it is often driven by a mix of need and achieving a certain level of financial strength, personally and in your business:
- Your business is mature and profitable
- You have a sufficient deposit – typically 30% + transaction costs
- It is a strategic asset, whether due to location, being fit for purpose or growth potential
- Your personal assets are in a good place e.g. you have already bought your own home
- You believe the market conditions are favourable
What is the Commercial Property loan process?
The process is similar to our Finance MADE EASY process for home loans but has more focus on workshopping and testing your scenarios with the bank given most commercial scenarios are more complex:
- Understand goals and scope
- Collect supporting documents (Phase 1)
- Initial assessment
- Workshop with bankers
- Discuss and decide
- Collect additional supporting documents (Phase 2)
- Prepare Credit Paper
- Submit loan application / formal credit testing
What Supporting Documents are needed?
Residential, commercial, land, rural/agricultural assets are usually all acceptable forms of security.
The “full-document” (aka “Full Doc”) requirements of a bank can be quite extensive as they typically need to cover your business’ income, as well as your personal income. This will include any trusts or related companies that receive income so that the bank can see your full “flow of income” and make sure taking on a Commercial Property Loan does not impact your ability to service your personal commitments.
We strongly recommend you delegate the collation of key income to your accountant/bookkeeper to save you time and rework.
Typically, for an initial assessment, we require:
Phase 1
- Group structure diagram
- All trading businesses – latest year’s financial statements & tax returns
- All holding entities (trusts, SPVs, etc) – latest year’s financial statements & tax returns
- Latest loan statements – all commercial facilities
- Latest lease agreements & rental statement – all commercial investment properties
- Directors’ driver license
- Director’s assets & liabilities completed (personal)
- Directors’ last 2 year’s tax returns & NOA – for a full-doc bank assessment
To then formally submit your loan and meet all loan conditions, you will need to provide:
Phase 2
- ATO portals
- Accountants letters
- Personal home loan / investment loan statements & rental statements
- Bank transaction history evidencing business & rental income
- Completed & signed lender application forms
- Other information the lender may require to approve the loan
If this level of information is too onerous, or you do not meet a bank’s requirements generally, we can evaluate the suitability of a Commercial Alt Doc Loan.
What structure can I purchase the property in?
We can handle purchases in all types of entity structures:
- Personal names / Sole Trader
- Partnerships
- Companies
- Trusts
- Self-Managed Super Funds (SMSFs)
Please seek accounting and legal advice on which is the right one for your circumstances.
What are the deposit and loan repayments?
The maximum Loan-to-Value-Ratio (LVR) for a “standard” commercial property purchase is 65-70% LVR, reflecting the higher risks of Commercial Property compared to a Residential Property. However, for some professions such as healthcare, or if other security can be provided, such as residential property or business good will, it is possible to go as high as 100% LVR. By contrast, if the property itself is highly specialised, unusual, in a risky industry, or in a remote location, allowable LVRs can drop to 50% or even lower.
A rough breakdown based on a 70% LVR is as follows:
| Purchase Price | $1,000,000 | $2,000,000 | $3,000,000 |
|---|---|---|---|
| Stamp Duty | $40,000 | $94,000 | $149,000 |
| Transaction Costs @ 1% | $10,000 | $20,000 | $30,000 |
| Total Costs | $1,050,000 | $2,114,000 | $3,179,000 |
| LVR | 70% | 70% | 70% |
| Loan Amount | $700,000 | $1,400,000 | $2,100,000 |
| Total Contribution | $350,000 | $714,000 | $1,079,000 |
| Add 10% GST | $100,000 | $200,000 | $300,000 |
| Total Contribution Including GST | $450,000 | $914,000 | $1,379,000 |
| Loan Repayments @ 7% P&I | $4,947 | $9,895 | $14,842 |
| Loan Repayments @ 7% IO | $4,083 | $8,167 | $12,250 |
Please note that commercial purchases with vacant possession incur GST. You need to add an additional 10% of the property value onto the contribution required, however you will get it back in your next BAS.
The loan repayments assume a 25-year loan term, and the availability of this option will depend on your lender. The rate is indicative only and is higher for Alt Doc Loans, SMSF Loans, and Interest Only Loans.
Again, please note the LVR can also change according to security type and lender policy.
What are the extra costs to proceed with a Commercial Property Loan?
There is no cost to conduct an initial assessment and provide our initial recommendation.
If deciding to formally proceed with your loan enquiry, Commercial Property Loan will usually have some extra costs compared to a home loan. These include:
- An engagement fee / mandate fee / initial work fee
- A lender establishment fee
- A brokerage commission of “Success Fee”
- Valuation fees
- Legal fees
- Administration
Typically, all or a portion of a broker’s commission is paid for by the lender’s establishment fee.
At SF Capital – a formal quote will always be provided before proceeding, outlining our Success Fee and/or any broker commissions we earn. If you are working with a broker, and the broker’s commission is not disclosed to you, there may be a case of ‘double dipping’ without you knowing, which is a practice we frown upon.
Do you have any other tips to secure a Commercial Property Loan?
For smaller loan amounts, say less than $1.5M, the process to approve a Commercial Loan may seem quite straightforward, similar to a home loan.
However, if the loan size and LVR increase, there is missing paperwork or there are challenges with the deal, e.g. you may have experienced some variability in your business performance, then the approval process can take longer or become more difficult.
If this is expected, it may be worthwhile to consider a Commercial Alt Doc loan, or other loan options such as Private Lending.