Applying for commercial finance is different to applying for a home loan because lenders care more about the income the property generates than your personal income.
A commercial property loan gets assessed on both the strength of the property as security and the viability of your business or investment proposition. Understanding how lenders weigh these factors changes the way you prepare your application.
How Lenders Assess Income on Commercial Property
Lenders primarily look at the lease income or the business income generated from the property. If you're buying an office building with existing tenants, the lender will assess the lease agreements to confirm rental income. If you're buying a warehouse to run your own logistics operation from, they'll want to see your business financials proving you can service the loan amount.
Consider a manufacturing business in Dandenong looking to purchase an industrial property for $1.2 million. The business has been leasing for five years and wants to own the premises. The lender reviewed three years of business tax returns, current profit and loss statements, and the property valuation. Because the business showed consistent revenue of around $2.8 million annually with healthy margins, and the property valuation came in at $1.25 million, the application was approved with a loan structure allowing 70% LVR. The business provided a 30% deposit and secured the loan at a variable interest rate with flexible repayment options.
What Documentation Gets Requested
Commercial applications require more documentation than residential because lenders need to understand both the property and your business. You'll be asked for recent business tax returns, usually the last two years, along with current management accounts if the financial year isn't recently completed. A profit and loss statement and balance sheet are standard. If the property has tenants, you'll need to provide copies of the lease agreements showing rent amounts, lease terms, and tenant details.
The lender will also order a commercial property valuation to confirm the asset value matches the purchase price. For commercial bridging finance or commercial development finance, they'll want to see detailed project costings and timelines. When buying commercial land for future development, expect questions about planning permits and intended use.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Gfinance Group today.
Commercial LVR and Deposit Requirements
Commercial lenders typically lend up to 70% of the property value, meaning you'll need at least a 30% deposit. Some lenders will go to 80% LVR for strong applications with established businesses and high-quality properties, but this usually comes with a higher interest rate. Industrial property loans and retail property finance often sit at the lower end because these property types can be harder to sell if the loan defaults.
Secured commercial loans rely on the property as collateral, so the lender's risk is directly tied to how saleable that property is. A strata title commercial unit in a well-located office building in Melbourne's CBD is viewed differently to a standalone warehouse in a regional area. The former gets better LVR and rate options.
Fixed Versus Variable Interest Rates
You can lock in a fixed interest rate for a set period, usually one to five years, or stay on a variable interest rate that moves with the market. Fixed rates provide certainty for budgeting, which matters when you're running a business with tight margins. Variable rates often come with features like redraw or the ability to make extra repayments without penalty, which suits businesses with fluctuating cashflow.
Some borrowers split the loan, fixing part and leaving part variable. This approach balances certainty with flexibility. A business buying commercial property in Frankston to expand operations might fix 60% of the loan to lock in repayments and leave 40% variable to allow extra repayments when sales are strong.
Loan Structure Options for Different Situations
How the loan is structured depends on what you're buying and why. Progressive drawdown works for commercial construction loans where funds are released in stages as the build progresses. A revolving line of credit suits businesses that need ongoing access to funds for working capital while also servicing property debt. Interest-only periods can be arranged if you're holding the property as an investment and want to maximise cashflow in the early years.
For buying new equipment or upgrading existing equipment as part of a property purchase, some lenders will bundle equipment finance into the commercial loan structure rather than splitting it across multiple facilities. When expanding business operations into a larger premises, you might combine a property loan with working capital funding to cover the fit-out and relocation costs.
How Victoria's Commercial Property Market Affects Approval
Lenders factor in local market conditions when assessing applications. In Victoria, suburbs like Dandenong, Springvale, and Campbellfield have strong industrial property markets with consistent demand from logistics and manufacturing businesses. Office buildings in areas like South Yarra or Richmond tend to hold value well due to proximity to the CBD and transport links. Retail property finance in suburban shopping strips can be harder to secure unless the tenant mix is strong and lease terms are long.
A business looking to buy an industrial property in Campbellfield for warehousing would likely find lenders receptive due to the area's established industrial profile and good freight access via the Hume Highway. The same business looking at a similar property in a less established industrial area might face tighter LVR limits or higher rates.
When to Consider Commercial Refinance
Refinancing a commercial loan makes sense when interest rates have shifted, your business has grown and you can negotiate better terms, or your current loan structure no longer fits your needs. If you took out a loan three years ago at a higher rate and your business financials have improved, you might qualify for a lower rate now. Refinancing can also release equity if the property has increased in value, providing funds for further expansion without selling.
Gfinance Group works with businesses across Victoria to structure commercial finance that fits the property and the business behind it. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is the typical deposit required for a commercial property loan?
Most commercial lenders require a minimum 30% deposit, meaning they will lend up to 70% LVR. Some lenders may go to 80% LVR for strong applications with established businesses and quality properties, though this usually attracts higher interest rates.
How do lenders assess income for commercial property loans?
Lenders primarily assess the lease income from the property if it has tenants, or the business income if you'll occupy it yourself. They review lease agreements, business tax returns, profit and loss statements, and balance sheets to confirm you can service the loan amount.
What is progressive drawdown on a commercial construction loan?
Progressive drawdown is a loan structure where funds are released in stages as construction progresses, rather than all at once. This is commonly used for commercial construction loans and commercial development finance projects.
Can I get a fixed interest rate on a commercial loan?
Yes, you can fix your commercial loan interest rate for a set period, usually one to five years. You can also choose a variable interest rate, or split the loan between fixed and variable to balance certainty with flexibility.
What documentation is required for a commercial loan application?
You'll need recent business tax returns (usually two years), current profit and loss statements, balance sheets, and management accounts. If the property has tenants, you'll also need lease agreements, and the lender will order a commercial property valuation.
