Commercial
Commercial finance, and how lenders assess it
Commercial lending is not a bigger home loan. The pricing is negotiated rather than published, the security drives appetite as much as the borrower does, and the entity behind the loan is part of the assessment.
Written by Gavin Harrigan, Managing Director
Broking since 2005, four-time Top 100 broker and a PLAN Australia Hall of Fame member.
Published
Key takeaways
The things worth rememberingCommercial pricing is negotiated, so how the file is presented affects the answer
The security type drives lender appetite as much as your financials do
The borrowing entity and the security structure are decisions worth making with your accountant
Lenders want current financials and a clean tax position before they will engage
Commercial facilities have review and expiry dates that need diarising
Not every business problem is a property loan; the right facility depends on the need
That changes what the work is. On a home loan the job is finding the policy that fits; on a commercial file it is presenting the file so a credit team can say yes, and then negotiating what they say yes to.
This guide covers what lenders assess, what they ask for, and which kind of facility fits which problem.
The short answer
A commercial lender assesses the security, the income that services the debt, and the entity borrowing it. Pricing and terms are then negotiated on the strength of that file rather than read off a rate sheet.
Because it is negotiated, who presents the file and how well it is put together genuinely affects the outcome. That is not true in the same way on a residential loan.
What makes commercial lending different
| Residential | Commercial | |
|---|---|---|
| Pricing | Advertised, with discounts within a range | Negotiated on the file, case by case |
| Assessment | Largely policy-driven and consistent | Judgement-driven, with appetite varying by security type |
| Security | A house, valued against comparable sales | Property, business assets or receivables, each assessed differently |
| Documents | Payslips and statements | Financials, tax returns, the ATO position and often a business plan |
| Term | Long, and left alone once settled | Shorter, with review and expiry dates that come around |
The last row catches people out most often. A commercial facility that nobody diarises can reach its expiry with no plan behind it, which is a bad week to start looking for a new lender.
What lenders want to see
The paperwork is heavier than on a home loan, and preparing it properly is most of the difference between a smooth file and a slow one.
- Current financial statements and tax returns for the business and the entities involved
- The tax position, including any arrangement in place with the ATO
- Details of the security, including a lease or tenancy schedule where the property is leased
- The structure of the borrowing entity, and who is guaranteeing it
- Aged debtors and creditors, where the facility relates to working capital
- An explanation of anything unusual in the numbers, written before the assessor asks
How the security type changes everything
Lender appetite for commercial security moves constantly, and it moves by category. The same lender that wants industrial property this year may not want retail.
- Standard commercial property, such as offices, retail and industrial, which most lenders will consider
- Specialised security, such as childcare, hospitality or medical premises, where the pool narrows
- Property with a single tenant, where the lease term and the tenant's strength carry real weight
- Vacant commercial property, which is assessed far more cautiously
- Non-property security, such as equipment, vehicles or receivables, which is its own market
This is why the first question on a commercial file is what the security is, not how much you want. The security decides which lenders are even in the conversation.
Which facility fits which problem
Not every business finance problem is solved by a property loan. Matching the facility to the actual need is the cheapest decision available.
| The problem | The facility |
|---|---|
| Buying premises to trade from or to lease out | A commercial property loan |
| Funding growth, a purchase or a one-off need | A business loan |
| Buying vehicles, plant or equipment | Asset finance, secured by the asset itself |
| Cash flow that lags behind invoicing | Working capital, or debtor finance against the receivables |
| Buying commercial property inside super | An SMSF commercial property loan, with its own rules |
| Financials not yet up to date | A low doc facility, assessed on alternative evidence |
| A deadline a bank cannot meet | Private commercial funding, faster and more expensive |
Each of those has a page on this site with the detail on it. The wrong facility is usually more expensive than the right one even when its rate looks lower.
Where to go next on this site
| Page | What it covers |
|---|---|
| /commercial-loans-perth/ | The commercial service, and how a file is presented and negotiated |
| /commercial-loans-perth/commercial-property-loans/ | Buying or refinancing commercial premises |
| /commercial-loans-perth/business-loans/ | Funding growth, purchases and one-off needs |
| /commercial-loans-perth/asset-finance/ | Vehicles, plant and equipment, secured by the asset |
| /commercial-loans-perth/working-capital-loans/ | Bridging the gap between paying out and being paid |
| /commercial-loans-perth/debtor-finance/ | Funding against your receivables |
| /commercial-loans-perth/smsf-commercial-property-loans/ | Commercial property inside a self managed super fund |
| /commercial-loans-perth/low-doc-commercial-loans/ | Where the financials are not current |
| /commercial-loans-perth/private-commercial-loans/ | Private funding, for speed or for a file banks will not take |
If the project is a development rather than a purchase, that is a different kind of funding again.
| Guide | What it answers |
|---|---|
| /guides/property-development-finance-guide/ | How a development is funded, and what a funder assesses |
| /guides/property-investment-finance-guide/ | Investment lending, residential and commercial |
| /guides/mortgage-broker-vs-bank/ | Why a negotiated file benefits from somebody presenting it |
About the author
Gavin Harrigan
Managing Director
Gavin has been broking since 2005 and has made the Top 100 brokers list four times. He is a PLAN Australia Hall of Fame member, which is awarded for sustained excellence rather than a single good year.
Qualifications
- Bachelor of Commerce, Applied Finance and Commercial Law — Curtin University
- Diploma of Finance and Mortgage Broking Management — AAMC Training Group
- PLAN Australia Hall of Fame member
- Elite Broker status
- Top 100 Brokers, four times
Accredited across the 40+ lenders on the MoneyQuest panel and working under Australian Credit Licence 389083.
Read Gavin’s full profileQuestions people ask about this
How is a commercial loan different from a home loan?
Commercial pricing is negotiated rather than advertised, the assessment relies on judgement about the security and the business rather than on standard policy, and the facility carries review and expiry dates. The documentation is heavier, and the entity borrowing the money is part of what is assessed.
What documents do I need for a commercial loan?
Generally current financial statements and tax returns for the business and the entities involved, details of the security including any lease, the tax position including any ATO arrangement, and identification for the guarantors. Anything unusual in the numbers is best explained in the file rather than left for the assessor to find.
Can I buy commercial property through my SMSF?
It is possible under a limited recourse borrowing arrangement, and it is a specialised area with rules that sit outside credit law. It needs your accountant and adviser involved alongside the lender, and it has its own page on this site.
Why does a commercial loan have a review date?
Commercial facilities are usually written for a defined term and reviewed by the lender at set points, when it reassesses the security, the financials and the pricing. Diarising those dates matters, because reaching an expiry without a plan leaves you negotiating from a weak position.
Is a broker worth using on a commercial file?
Commercial pricing and terms are negotiated, so how the file is assembled and who presents it affects the outcome in a way it does not on a residential loan. Some commercial and specialist files carry a broker fee, and where one applies it is disclosed in writing before any work starts.
Related guides
Other guides worth your timeThese overlap more than they look like they do. Most people end up reading at least two.
The information on this page is general in nature and does not take into account your objectives, financial situation or needs. Any figures shown are estimates only. Lending is subject to approval, and to the lender's terms, conditions, fees and charges. Consider whether the information is appropriate for you before acting on it.
Quantum Finance Australia Pty Ltd ABN 63 115 967 818 as trustee for the Gavin Harrigan Family Trust trading as Quantum Finance Australia is authorised under Australian Credit Licence Number 389083.
Get in touch
Still got a question about commercial?Reading gets you the general answer. Four questions here and a broker will work out what it means for your file, then ring you back on the number you give us.
Would rather just talk?
Ringing is quicker than waiting for us to ring you, and you get a broker rather than a queue.
1300 813 113