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Commercial Loan Criteria: Advice from Commercial Property Specialist Brokers

Commercial loans are generally considered a higher yielding alternative to residential loans.  There are, however, several major differences.Commercial loans are generally a more complex asset class with more capital required upfront due to the lower LVRs and typically higher purchase prices.

The individual’s eligibility is generally very similar to in the residential space, but the criteria can be a bit more complex:

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  • INCOME VERIFICATION

As commercial finance brokers, we have a detailed understanding of how businesses work and their income verification options. 

  • Full-doc: All personal income/debt is considered.
  • Low-doc: This is ideal for self-employed borrowers looking for a simpler option
  • Lease-doc: Ignore all personal debt/income if the current lease has 2+ years left on the WALE (Weighted Average Lease Expiry). The NET yield must cover the interest at a buffer, usually 1.5x ICR (Interest Cover Ratio).Multiply the annual interest by 1.5 and if that figure is less than the net yield, then you should be good to go! That also means you can easily back-calculate the required yield.For example: a 60% LVR lease-doc loan at 6% and 1.5x ICR requires a net yield of 5.4%. Calculated as 60%*6%*1.5. The ICR can be as low as 1.1 for < 60% LVRs and the right asset.
  • LVRs

These range based on the security, but generally you’re looking at:

  • Standard security: 80% LVR for commercial property, and 70% for the notably more competitive rates
  • Owner-occupied: 90% in most cases, with a GSA provided over the business
  • Owner-occupied: 100% allowable for strong applications (GSA needed)
  • Owner-occupied: Medico at 100%.
  • Specialised: Generally 60%s - 70%
  • STRUCTURE
  • SECURITY
  • Standard Security: Office space, retail and industrial
  • Specialised Security: Medical, hospitality, childcares, petrol stations, etc.
  • Mixed Use
  • Primary Production
  • Pseudo-Commercial: Blocks of units, boarding houses
  • Time frames and Costs
  • Expect higher costs. Things aren’t too bad at the 70% LVR bracket, but keep in mind that a valuation will set you back $2k–$3k on most properties.
  • Expect Finance to take 21 – 28 days in most cases, which is slower than typical Residential Financing.

Advanced Strategies
and Niche Solutions

At Blue Fox Finance, we can help you navigate everything from low-doc commercial loans to lease-doc loans.

Here are a few niches which may be of use:

  • Lease-doc loan terms are generally equal to the WALE (Weighted Average Lease Expiry), but we can actually do a lease-doc loan over 25 years (set and forget) AND use a 1.25x ICR on the gross yield (higher rates).
  • Lease-doc commercial property loans can be done without a personal guarantee.
  • We have high-rate lenders (RBA + 5.90%) who will do lease-doc on a 1.1x ICR if you get stuck trying to get out of a mainstream lease-doc loan (1.5x ICR) but are unable. It’s a temporary solution, but can help prevent a forced asset sale.
  • Likewise, we have a mainstream and highly competitive lender that will look at 1.1 ICR for strong security and 60% LVR.
  • Unit trusts can purchase commercial property with SMSFs.  i.e. Mickey Mouse wants to buy a $4mil Commercial Property as a Joint Venture with Jiminy Cricket’s SMSF to pool a sufficient enough amount of funds – this can be done.
  • Owner-occupied commercial loans can be done at pretty high LVRs; 90%–100% if you can offer a GSA over the trading business.
  • Owner-occupied commercial loans can be done in an SMSF. This can be a viable option   if you need a stable premise for your business and have sufficient super funds. It’s generally pretty easy to add large chunks of cash into the super fund if you need to combine your super/non-super funds for the purchase.
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Your Trusted Finance Broker for Commercial Property Loans

Connect with a reliable online broker for commercial finance today. With expertise in owner-occupied commercial loans, lease-doc commercial property loans, and more, we can help you structure your loan application for success. Contact us online or give us a call on 07 3496 9570!

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