September 20, 2020
Commercial Property Finance: Terminology and principles.

WORKS By: MHF FINANCE

MHF Business Finance

Consider Commercial Property Finance To Buy Or Refinance A Commercial Property

There’s a lot of commercial property financing products out today to help fund the growth of your commercial property portfolio. Whether you’re looking for a long-term arrangement to fund the investment of a new property, or just a short-term plan to finance the renovation of your commercial property, they can give a part of the funds you need so you can push through. But before you can buy that new commercial space or refinance your existing business, you need to know that they’re completely different from residential property finance. Continue reading to learn how they’re different and how to choose the perfect commercial property finance for your business.

Commercial property finance Brisbane

How Can Commercial Property Financing Benefit You?

Commercial property financing can provide the finance you need to buy a commercial property. The amount borrowed earns interest, either at a fixed or variable rate, and has to be repaid in full before the loan term ends.
Lenders can offer funding for various commercial properties, including:
• Warehouses
• Office spaces
• Factories
• Industrial sites
• Retail outlets
• Shopping centers
• Accommodations like hotels, motels, etc.
• Pubs and restaurants
• Childcare centers
The commercial property you buy will most probably be one of the most important assets your business can own. This is why it’s crucial to choose the right commercial property finance provider to fund your purchase.
Once you’ve chosen a commercial property, think about why you need help with financing. This is because your purpose can affect how a lender assesses your application:
• Purchasing commercial properties as investments – if you’re planning to buy a property and rent it out to a third person, lenders see you as a low-risk borrower. This means better interest rates and an easier application process.
• Purchasing commercial properties as an owner-occupier – if you’re buying a property, which will also serve as the premises of your business, lenders will classify you as a high-risk borrower. Therefore, you’ll generally get higher interest rates and you’ll have to meet stricter lending criteria.

Commercial Property Finance versus Residential Property Finance

Lenders see commercial properties riskier compared to residential properties because vacancy periods are more extensive, but that should not deter you: industrial property loans also have their benefits . Here are some of the key differences between commercial and residential property financing:

Interest Rates

Commercial property financing products have a higher interest rate than residential ones.

 Lower Maximum LVRs

While lenders can offer a maximum LVR of 70% for commercial properties, they can offer 90% or even 95% LVR for residential properties. Meaning, you need to have a larger amount of money stored to qualify for financing.

 Higher Fees

Make sure you’re aware of any upfront or ongoing charges included in a product before deciding if it’s right for you.

How to Compare Commercial Property Finance Options

Below are some factors to consider when choosing a commercial property financing product:

Interest Rate

This can make a huge difference to the cost of your financing and greatly depends on what a lender considers an acceptable level of risk. Here are some factors that can affect interest rates:
• The commercial property’s location
• The local property market’s performance
• Your current financial situation and whether you can repay the amount you borrowed
• The LVR (or how much deposit you’ve saved)
• Your assets and liabilities
• The experience you have as a commercial property owner

 Fees

It’s also important to consider all the fees included in your commercial property finance choice. Aside from the application fee and the possible ongoing monthly or annual fees, check if there’ll also be a fee for certain situations such as if you’re going to make an additional repayment, if you’ll access the loan’s redraw facility, etc.

Maximum LVR

Ask how much you can borrow from a lender when buying a commercial property. For example, the property you’re planning to buy has a purchase price of $1 million. If lender A can offer a 70% LVR while lender B can only lend an LVR of 60%, this means you only need to deposit $300,000 if you go with commercial property finance lender A (30% of the purchase price) while $400,000 if you go with lender B.

Loan Limits

How much can the lender let you borrow when buying a commercial property? Minimum and maximum limits apply, and can range from $250,000 to $5 million. While you can also borrow $5 million and above, they may have special assessment criteria where the lender weighs up the merits of every application on a case-to-case basis.

Repayment Schedule

Compute your ongoing repayments on any proposed agreement. Can you realistically afford all of your repayments? Do you need to make principal and interest repayments on your commercial property finance plan from day one, or do you have the option to make interest-only repayments for a certain period?

Other Features

Finally, check its full list of features and see if it can be customized to your needs. For example, can you make additional repayments and not incur any penalties? Or, can you access those additional repayments through a redraw facility in case you have a cash flow shortage?

Here at MHF Finance, we know that each one of our clients has different financing needs. With access to many bank and non-bank institutions, our goal is to provide you with the most effective solution that fits your requirements. Need help buying that commercial property you’ve been eyeing? Contact us today and let us be your commercial property finance partner!

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