Everything You Need to Know About Commercial Property Finance

Understanding Owner-Occupied Commercial Property Finance

Owner-occupied commercial property finance allows businesses to purchase the premises they operate from, rather than continuing to lease. The loan structure differs from residential lending in several key ways: lenders assess serviceability based on business cashflow rather than personal income, loan terms typically range from five to 30 years, and deposit requirements generally sit between 20% and 30% of the purchase price.

For a business in Wantirna looking to purchase a warehouse unit in the Studfield industrial precinct, the application process centres on demonstrating consistent business performance. Lenders review business financials from the past two years, including profit and loss statements, balance sheets, and tax returns. They also consider the nature of the business, how long it has been operating, and whether the premises will support ongoing business activity.

The distinction between owner-occupied and investment commercial property matters significantly. Owner-occupied finance typically attracts lower interest rates because the business has a direct interest in maintaining the property and continuing operations. Lenders view this as lower risk compared to a commercial investment property reliant on tenant income.

How Commercial Property Loan Structures Work

Commercial property loans can be structured with variable or fixed interest rates, or a combination of both. Variable rates provide flexibility with redraw facilities and the ability to make additional repayments without penalty. Fixed rates offer certainty over a set period, typically one to five years, which can assist with business planning and budgeting.

The loan amount a business can access depends on several factors: the value of the commercial property, the business's ability to service the debt, and the loan to value ratio the lender will accept. Most lenders cap commercial lending at 70% to 80% LVR, meaning a 20% to 30% deposit is required. Some lenders may extend to higher LVRs with additional security or a stronger financial position.

Repayment structures vary based on business needs. Principal and interest repayments reduce the loan balance over time, while interest-only periods can provide cashflow relief during business growth phases or fitout periods. Most lenders offer interest-only terms of up to five years on owner-occupied commercial loans, though the overall loan term continues beyond that period.

Commercial Property Valuation and Settlement Considerations

A formal commercial property valuation is required for all commercial lending. Unlike residential properties, commercial valuations consider factors such as zoning, tenancy history if the property has been leased previously, location accessibility, and the suitability of the premises for the intended business use. The valuation determines the maximum loan amount available and influences the interest rate offered.

Settlement on a commercial property typically takes 60 to 90 days, longer than the standard 30 to 60 days for residential transactions. This extended timeframe allows for commercial building and pest inspections, solicitor review of zoning and development approvals, and completion of the lender's due diligence process. For properties in Wantirna's mixed-use zones along Burwood Highway, confirming permitted business use under current zoning is a critical step before exchange of contracts.

Stamp duty on commercial property in Victoria is calculated on the purchase price and cannot be added to the loan amount in most cases. Businesses need to budget for this cost separately, along with legal fees, valuation fees, and any fitout expenses if the premises require modification. If the property is sold with GST applicable, the purchase contract will specify whether GST is included in the sale price or added on top. Most sales of commercial property as a going concern are GST-free, but this should be confirmed with your solicitor and accountant.

Serviceability Assessment for Business Property Loans

Lenders assess a business's ability to service a commercial loan using business financials rather than personal income. They typically require two years of financial statements prepared by an accountant, recent business activity statements, and current profit and loss reports. The assessment focuses on net profit, cash reserves, and the business's trend over time.

Consider a consulting business operating from leased office space in Wantirna South. The business has been trading for four years with consistent profitability and seeks to purchase a small office suite. The lender reviews the past two years of financials, calculates an average net profit, and applies a serviceability buffer to ensure the business can meet loan repayments even if income decreases. If the business shows net profit of $180,000 annually and seeks a loan requiring $60,000 in annual repayments, the lender applies their serviceability ratio, usually requiring net income to exceed repayments by a margin of 1.25 to 1.5 times. In this scenario, the business demonstrates sufficient serviceability.

Business structure also influences assessment. Companies and trusts require financial statements for the entity and may require personal guarantees from directors or trustees. Sole traders and partnerships provide both business and personal tax returns, as the business income flows through to personal assessable income.

Refinancing Commercial Property and Accessing Equity

Commercial property refinance allows businesses to restructure existing debt, access equity for business expansion, or move to a lender offering more suitable loan terms. Equity in owner-occupied commercial premises can be used to fund fitouts, purchase equipment, or invest in additional business property.

The refinance process mirrors a new purchase application: the property is revalued, business financials are assessed, and the lender determines the maximum LVR they will support. If a business purchased a warehouse five years ago and has reduced the loan balance while the property has increased in value, the available equity is the difference between the current valuation and the outstanding loan amount, less the lender's required equity buffer.

Accessing commercial equity through refinance may trigger break costs if the existing loan has a fixed interest rate component. Lenders charge break costs to recover the difference between the fixed rate on the loan and the current wholesale rate for the remaining fixed period. Before proceeding with a commercial property refinance, the business should calculate whether the benefits of refinancing outweigh any exit costs from the current loan.

Choosing Between Variable and Fixed Interest Rates

Variable interest rates on commercial property loans fluctuate with market conditions and lender pricing changes. They typically include features such as redraw facilities, allowing the business to access additional repayments made above the minimum requirement. This flexibility suits businesses with variable cashflow or those planning to make lump sum repayments when funds are available.

Fixed interest rates provide certainty by locking in a rate for a set period, usually between one and five years. Businesses with consistent cashflow and a preference for predictable outgoings often choose fixed rates, particularly when interest rates are expected to rise. The drawback is reduced flexibility: most fixed rate commercial loans do not offer redraw, and early repayment or refinancing may attract break costs.

A split loan structure combines both variable and fixed components, allowing a business to maintain some flexibility while securing a portion of the debt at a known rate. This approach is common for businesses wanting to balance certainty with the ability to make additional repayments or access equity when needed. When considering commercial loans, the choice between variable, fixed, or split structures should align with the business's cashflow patterns and growth plans.

Working with a Mortgage Broker for Commercial Finance

A mortgage broker with experience in commercial property finance can access loan options across multiple lenders, including major banks, regional lenders, and specialist commercial financiers. Each lender has different appetite for business types, property types, and LVR requirements. A broker compares these options and identifies lenders most likely to approve the application based on the business's specific circumstances.

Brokers also assist with structuring the loan to suit business needs. This includes determining the appropriate loan term, selecting between variable and fixed interest rates, and identifying whether features such as offset accounts or redraw facilities add value. For businesses expanding from a single premise to multiple locations, a broker can structure facilities that allow for future purchases without requiring a full application each time.

In Wantirna, where commercial property ranges from small retail shopfronts in Knox City surrounds to larger office and warehouse spaces near Eastlink, understanding which lenders actively support each property type improves the likelihood of approval and competitive pricing. A mortgage broker in Wantirna familiar with the local commercial market can provide insight into lender preferences and current commercial property rates.

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