If you are an owner of a Commercial Property, how do you know if you’re getting the best deal? Whether you own your own Business Premises or a Commercial Investment Property, let us keep your bank honest to source you the most competitive offer you can. We can assist regardless of type of commercial property, or type of solution you are looking for – whether better rate, more leverage or more flexible repayments.
Why do clients refinance?
Most clients think they should only refinance to get a better rate. This is not true, there are many other reasons why clients refinance, especially for Commercial Property.
- Loan term has expired – you are looking to renew your loan
- Leverage – you are looking to borrow more against your current property
- Terms – you want a longer loan term, IO instead of P&I, less covenants
- Relationship – bankers change a lot, and the quality of staff you are now dealing with has declined
- Speed – an opportunity too good to be missed, and your current lender cannot move quick enough
- Lender has told you to leave – You have breached a covenant, or can no longer demonstrate loan servicing. If this is the case you may want to consider an Alt Doc Commercial Loan or Private Lending
Should I extend with my current lender, or refinance to a new lender?
You should not be wedded to your current lender if they are not giving you the best deal. The competitiveness of each bank can shift due to:
- Strategic decisions – different banks pursue different industries, whether it be property, healthcare, professional services, hospitality, manufacturing, or others. The list is long!
- Risk appetite – similarly, your bank may have decided to pull out of certain decisions, and will adjust their policies accordingly or even withdraw altogether
- Bad decisions going wrong – loans going bad, especially for specific industries, will often change risk appetite of a lender
- Pricing decision and pricing strategy – banks may also price themselves out of certain markets, or lower prices to attract certain customers
- No longer being able to handle you as a customer – you may have outgrown your current bank, or you may be in a difficult situation and your bank no longer wants to support
If your current bank is no longer giving you the best deal, you should consider switching.
What do I do if my bank says I can’t extend my loan?
If your loan term is up, and your current bank says that they can no longer renew your loan, you will have to refinance. Your loan options will be to consider:
- Other banks – these may be major banks such as the “Big 4”, or challenger banks such as Bendigo Bank, ING, Judo Bank, Macquarie, or Suncorp
- Alt Doc Lenders – such as La Trober, Liberty, Pepper, ThinkTank
- Private Lenders – there are many lenders here depending on your unique needs
When is a good time to refinance?
You can consider refinancing your Commercial Loan at any time. While the timing is situational for every client, triggers may include:
- If your loans are expiring – ideally 3-6 months out, start early!
- If your rates are significantly out of market
- If you are with a non-bank lender outside of their break period
- If there is an upcoming or urgent need e.g. strategic acquisition or new venture
What are some risks to my ability to refinance?
Being able to refinance is not always a ‘sure thing’. Risks to a successful refinance include:
- The property becoming vacant – if it is a commercial investment property
- Rents or commercial property values decreasing due to tougher market conditions
- Your income / business income declining
- Interest rates rising and reducing your borrowing capacity
If these conditions become too adverse, you may need to consider non-bank loan options, or selling the property.
How does refinancing a commercial property differ from refinancing a home loan?
There are several differences:
- You are dealing with a different part of the bank
- You or your broker will be dealing with a banker, rather than a general contact line within the bank
- The interest rates are usually higher for smaller loans and non-bank loans. However, it is possible for commercial lending rates to be lower priced, for very large commercial loans where the borrower and asset are very strong.
- The commercial bank is likely to ask more questions if you are self-employed, and your business or your property have gone through a challenging time
- There can be more paperwork if proceeding with a full-doc application with a bank. However, the paperwork can reduce if proceeding with a non-bank loan
What if I have a very specialised asset?
If you have a very unique or non-standard asset such as a mixed-use property, petrol station, child care centre, aged care centre, or even sports facility, it is still possible to refinance. However, there may be less lenders available, these lenders may impose more restrictive Loan-to-value ratios e.g. 50% LVR, or stricter loan criteria and credit metrics may apply e.g. higher Interest-Coverage Ratios and Debt-Servicing-Coverage Ratios.
What is the process to refinance?
Refinancing a Commercial Loan can take longer and require more analysis than refinancing a home loan, so please budget sufficient time if looking to switch lenders.
- 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?
We recommend you delegate all supporting documents relating to your personal tax returns and your business to your accountant / bookkeepers to save you time and rework.
The documents required to accurately assess your loan include:
- Group Structure Diagram
- All Trading Businesses – Latest year’s financial statements & tax returns*
- All Holding Entities (Trusts, SPV’s, etc) – Latest Year’s Financial Statements & Tax Returns
- Latest Loan Statements – All Commercial Facilities
- Latest Lease Agreements & Rental Statement – All Commercial Investment Properties
- Directors’ Drivers License
- Director’s Assets & Liabilities completed (personal)
- Directors’ Last 2 Year’s Tax Returns & NOA – For a full-doc bank assessment
This list assumes a Full Document (“Full Doc”) Loan with a bank, and for a Commercial Owner Occupied loan where the loan size is substantial, say over $1.5M. The process can be easier if the loan size is smaller, or if you are refinancing a Commercial Investment Property e.g. only the lease agreement(s) may be required.
To submit your loan and get to Formal Approval, you will likely require:
- ATO Portals
- Accountants letters
- Personal home loan / Investment Loan Statements & Rental Statements
- Bank transaction History evidencing business & rental income
- Completed and signed lender application forms
- Other information the lender may require to approve the loan.
What are the costs?
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.