Commercial Finance applies to all properties zoned as Commercial or Industrial by local council. Typical Commercial properties include office suites, retail premises or warehouse space.
Specialised commercial property includes pubs, hotels, childcare centres, aged care facilities, nursing homes, petrol stations, blocks of units, boarding houses, or any other specialised asset.
Generally, anything that falls outside remit of a residential lender will be regarded as commercial.
Typical Loan-to-Value Ratios (LVR’s) for commercial fall within 65% – 70%. This depends on the the lender, the type of asset and the overall strength of the client in terms of balance sheet, cash flow and personal and business history.
A 75% LVR can be achieved with some lenders, if the property being purchased is an Owner Occupied premises. That is the trading business is occupying the asset being purchased.
An 80% LVR can be achieved with some lenders under a Lo-Doc process. However, the loan must be kept under $1 Million and there are very cut and dry criteria to qualify.
Above 80% LVR, up to 90% LVR, can be achieved for certain professionals, typically Medical Professionals who are Doctors (General Practitioners and Specialists), Dentists or Surgeons. Pharmacists and Optometrists can also achieve this LVR with
Generally, if you are willing to cross-collateralise residential security, you can achieve above the standard Commercial LVR’s. However, this would make the overall LVR below the standard
As Commercial Property Loans are “risk assessed” the Interest Rate depends on the overall strength of deal. This is a balance of the LVR, strength of servicing, financial position of the business and underlying director(s), and management track record.
The interest rate also depends on the loan structure and duration of the money taken out. The longer the term, the higher the rate.
As a guide in the current market:
A full document will typically need the documents below to initiate an assessment. Certified Drivers license and passport:
Please note this list is client dependent and will be tailored for each client’s unique scenario. A fuller list will be sent to you should you wish to make a full application.
If your supporting documents are not current at the time of application, there is a high risk that your loan will NOT be approved with a standard bank.
Your loan may have to fall under a Low Document Process or you may qualify for a Specialist Lender. Private Lending may be appropriate if the need to settle is extremely urgent.
If you are considering a Commercial Property Purchase we strongly recommend making an enquiry with us first to assess if you are fit for borrowing.
For very detailed enquiries, it will typically take 5 – 7 business days from the time we receive your supporting documents to (1) assess your application, in particular establish servicing income (2) prepare a brief discussion paper outlining key facts and (3) properly test our Commercial Lending networks and receive a response. If your scenario is simple, you can expect to hear back in a shorter time frame.
Post this assessment we recommend budgeting for a minimum 6 – 8 week settlement period when making a Commercial Property Purchase. If your scenario is more complex, we recommend negotiating more time.
In the current environment it can take a Commercial Bank 2 – 4 weeks from the time of submission to fully assess your application, be comfortable with all conditions and formally approve your loan. It can take another 1 – 2 weeks to then document your loan and prepare for settlement.
There are occasions where this timeframe can blow out for extremely complex transactions. We will help you manage this upon assessing your scenario to ensure you settle on time.
If you have not obtained an approval, and funds are needed urgently – say less than 2 weeks – you may require a Private Lender to help you settle on time.
We will assess this need on a case by case basis, and if suitable, partner you with a Private Lender whom we trust.
Fees for Commercial Property Finance are typically much more than standard Residential Lending. The biggest difference is the introduction of an establishment fee that is charged a percentage of the value of the loan.
For a Full Document Commercial Loan with a major bank, you can typically expect to pay:
Costs of external party fees are passed on at cost and will increase depending on transaction size.
SF Capital may charge a engagement fee on top of this, depending on the transaction complexity. See next question.
SF Capital will typically charge a fee for Commercial engagements as (1) there is a lot more work for the same and many times lesser return as a residential loan (2) there is a much lower probability of the loan going through from opportunity to settlement. This is because commercial properties are much harder to find and there is a lot more that can put a deal at risk.
Our fee structure is milestone based as follows:
If your property is very specialised the bank may impose a lower LVR. This means you will have to have a larger deposit to contribute towards the purchase.
The bank may also evaluate your previous experience to manage a specialised asset e.g. experience in childcare, nursing homes or running a pub or hotel.
The fees to value the property may also increase as the asset is more unique and hence more difficult to value.
Commercial lending works differently to Residential lending, in that rental income cannot be factored into serviceability where the property is untenanted i.e. not leased at the time of purchase.
Future rental income can only be factored into serviceability for Commercial Lending where the property is currently tenanted / leased. In some special cases, rental income can be used in servicing where the property is on the market and a lease is imminent.
A General Security Agreement (GSA) is a charge a bank places over a company (or other entity) to secure the assets and cash flows of that entity in the event of a loan default.
In other words, it is a legal right to the assets and future earnings of the business should something go wrong. The bank’s right is registered on what is known as the Personal Property Securities Register (PPSR) – see ppsr.com.au/about/pps-register.
GSA’s are typically requested where there is a larger loan size of over $1 Million and where the profits of a company are required to ensure the ongoing servicing of a commercial loan.