Commercial Property Loans:
Commercial loans are different to residential loans. They are secured against anything that is considered as a commercial property such as offices, ware houses, factory units, retail outlets, anything that has a direct link to businesses and isn’t going to be used for residential living.
Differences to residential lending:
Unlike residential lending, the borrower can only borrow up to 80% of the property value in most cases, most lenders will lend less than this, 65% to 70% is more common. There is no mortgage insurance on a Commercial Loan. A typical commercial loan is more expensive than a Home loan both in interest rates and in set up cost, for example the valuation can start at around $1000 for small commercial property and can take up to 10 days to get the final report. If the value of the property is up over a Million dollars then the valuation will be higher.
Application fees are in most cases a percentage of the loan amount. The loan term can also be shortened, quite commonly a Commercial Mortgage loan will be over a 15-year period unlike a typical home loan term of 30 years. There are some lenders that offer the 30-year period but most of the bigger lenders will not. It is the astute broker that has the knowledge of which will be able to match the commercial or business lender to the what the borrower is looking for. Not all lenders will have the appetite for every situation and the experienced broker will no what lender is going to be suited to do what the client is looking for.
Applications are more complex than residential lending. Residential lending will want some payslips and a PAYG Summary, some statements and fill out a form. Commercial applications are more involved than that. A Broker will know that there has to be a business case put forwarded to the lender to sell the customer and what they want to achieve.
Quite often the purchaser is self-employed so the broker will take the time to understand what the business is about and any items that need to be explained in the financial statements or tax returns. The formulas for working out affordability serviceability is much more complex, when working out affordability with residential lending the client can look up any home loan calculator to get an understanding of the interest repayments and gauge affordability. It is not that simple for commercial lending, therefore when making an application it is important that there is a good broker organizing the loan, they will save you time and frustration and they will also negotiate to get competitive rate and cost structure.
Types of Business Lending
- Business Start-up Loans
Starting a business is no mean feat. There are many costs involved, from monies to purchase property or rent space, to funds for marketing and purchasing the inventory. Luckily, there are many lenders who provide business lending to start-ups. These types of loans are among the most popular business loan requests. To qualify for these types of loans, borrowers must either have existing assets to pledge as security or prove that they can repay the loan through the cash flow of the business.
- Franchise Lending
Franchising is a business model whereby one is allowed to operate under another established business’ trading name and sells its services and/or products for a specified period. Various banks have specific franchise lending policies to financially support particular franchising businesses. These bank policies can allow franchises to utilize their franchise business as collateral for any business lending they require. The LVR (lending value ration) often ranges from 30-70% of the market value of the franchise business. So, cash and/or other collateral (i.e. property) is usually required to support a transaction.
- Equipment finance
Equipment loans are offered to businesses that require crucial equipment to run their profit-making operations. In most cases, the equipment that is financed serves as the collateral. As long as you have a good credit report and can convince the lender that there’s need for the equipment and that the funding provided will not go towards anything else, you can qualify for equipment finance.
Call us about Commercial & Business lending now on 0429417949