Research and planning are key when it comes to any investment, and there are a few things you need to know about commercial property loans before you decide whether this is the best next step for your investment portfolio. These include:
Commercial property loans typically offer various loan structures that are tailored to your specific needs, including traditional mortgages, commercial lines of credit, and construction loans. You can find a little more information on these loan structures below.
With a traditional mortgage, you’ll receive a lump sum upfront, which is payable over a fixed term with interest. Your options will include variable or fixed-rate terms, and the repayable period ranges from 5 to 25 years.
Commercial lines of credit are essentially revolving credit facilities that can be used for ongoing financing needs, allowing you to draw funds, repay, and redraw as necessary while only paying interest on the amount borrowed.
As their name suggests, construction loans are short-term loans that can be used to cover the construction costs of property development projects. This type of loan usually converts to permanent financing once the project is completed, and there will be a structured repayment plan.
Self-Managed Superannuation Funds (SMSF) are specifically designed for those looking to invest in commercial property, and they have unique eligibility criteria and structures that are tailored to comply with certain SMSF regulations.
This is financing for development projects, including land acquisitions, construction, and subdivision. Development finance loans typically have higher risk profiles and may require detailed project feasibility assessments to obtain.
All loans come with certain terms, but commercial property loan terms typically have shorter loan terms compared to residential mortgages. This, of course, depends on the loan structure, but certain terms may include balloon payments, principal and interest repayments, or interest-only periods.
Let’s start by taking a look at the eligibility criteria needed in order to apply for your commercial property loan.
This is the most important thing when it comes to meeting a lender’s criteria, and you must have a satisfactory credit history and demonstrate your ability to repay the loan.
The property being financed must be eligible for commercial lending purposes, such as office buildings or retail spaces.
You must also specify the purpose of the loan, stating whether it’s for property acquisition, refinancing existing debt, property development, or any other approved commercial process.
In order to be eligible for a commercial property loan, you must also be able to meet the lender’s minimum and maximum loan amount requirements and satisfy their Loan-to-Value Ratio.
You’ll need to be able to demonstrate that you have sufficient income and cash flow to support your loan repayments. Otherwise, it’s unlikely you’ll qualify for a commercial property loan.
Many lenders will also require additional security before considering you for a loan, such as personal guarantees, business assets, or cross-collateralisation with other properties. This isn’t always needed and will depend on your risk profile and the loan amount.
As well as meeting all of the eligibility criteria, there are documents you’ll also need to provide to obtain a commercial property loan.
The first thing you’ll need is your completed loan application form, which should provide the lender with your personal details, information about the property, loan amount, and loan purpose.
You’ll also need to supply identification alongside your loan application, such as your passport or drivers license.
Both your personal and business financial statements covering the past three years will need to be included with your application, including income statements, balance sheets, and tax returns. You’ll also need to include details of any existing debts, loans, or financial obligations.
Detailed information about the property should also be supplied with your application, including the address, legal description, valuation report, title deeds, insurance information, and survey plans.
Once you have gathered the relevant documentation, you can start the application process. This can seem like a complex thing, so to help make it clearer, we’ve broken the steps down into simple terms.
The first thing you need to do is apply for the loan. Complete the application form provided by your chosen lender and ensure that all of the information included is 100% accurate.
Alongside your application, submit the documents required. This will likely include most of the documents we’ve outlined above, but certain lenders may also require additional documentation in order to process your loan application.
Should your loan application meet the lender’s criteria and be approved, they will issue a formal loan offer outlining the terms and conditions.
Take your time to review the loan offer carefully, and if you’re happy with everything, sign the loan contract. Following this, the lender will release the funds to you or directly to the seller or settlement agent, and the loan agreement becomes officially effective.
Securing the best commercial property loan rates requires careful preparation and strategy! Here are our top tips for getting the best possible rates on commercial loans:
