Commercial Property Loan Calculator

How commercial property loans differ from home loans

Most people come to us expecting a bigger home loan. With a commercial loan the lender assesses you as a business, not as a borrower. A home loan tests your income against your living costs. A commercial loan tests whether the proposition stacks up, and the property, the lease and the tenant are all part of it.

They assess your tenant as well. A commercial lender looks at who pays the rent, what industry they are in, how exposed that industry is, and how long the lease has to run. A good building with a weak tenant on a short lease is harder to fund than most buyers expect.

The settings look nothing like a home loan. Expect 65–80% LVR, 3–5 year loan terms, 15–25 year amortisation, and 3–6 weeks from submission to approval. Two different numbers for the term and the amortisation catches people out. Your repayments might be worked out over 20 years while the facility itself comes up for renewal in three.

Property type and location drive the LVR more than anything else. An industrial unit in a tight market and a retail shop in a strip mall with high vacancy are not the same risk, and will not get the same LVR. Retail in a weak strip struggles to get a decent LVR at all. Fees run higher than residential across the board. Postcode restrictions are strict and vary by lender, so a location one lender is happy with can be a flat decline at the next.

One recent change is worth knowing about. Many commercial lenders now offer 30-year terms with no annual reviews. An annual review lets a lender revalue, reprice or call in your facility every twelve months, which is a stressful and risky way to hold an asset. Where we can, we steer clients away from lenders that still do it.

Two things decide whether a deal runs smoothly. Valuations are the most common reason a deal blows out, especially in a retracting market. A valuation that lands short changes your LVR, your deposit, and sometimes the whole purchase. The other is the quality of the submission. Feed a lender information piecemeal and the process drags. Put in a complete, well-argued submission and you get a decision in weeks instead of months. A good commercial broker in Sydney earns their keep right there, and it applies across every kind of commercial loan, not just property.

What DSCR means and why lenders care

DSCR stands for debt service coverage ratio. It tells a lender whether the property’s income covers the loan repayments, and by how much. Take the net operating income, which is the rent left after any outgoings you cannot recover from the tenant, and divide it by the loan repayments for the year. A DSCR of 1.0 means the income covers the repayments exactly, with nothing spare.

Lenders use it because it is the cleanest test of whether a deal pays for itself. Most want 1.25 or better, and some ask for 1.5 on riskier property types or shorter leases. Below 1.0 the deal does not service on its own, so the lender will want other income, a smaller loan, or a bigger deposit before looking at it. Above 1.5 you have room to negotiate on rate and terms, because you are a lower risk than the next file on the desk.

What you need to have ready

Commercial applications are document heavy. The difference between a three-week approval and a three-month one is usually how much of this you had ready on day one.

• The contract of sale, or the draft contract if you are still negotiating.
• The lease, the full executed document rather than a summary. The lender will read the term, the options, the review mechanism and the outgoings clause.
• A tenancy schedule if there is more than one tenant, showing area, rent, term and expiry for each.
• Two years of financials for the borrowing entity and any guarantors: financial statements, tax returns and ATO portals.
• A current asset and liability position, including all existing property and business debt.
• Trust deeds or company constitutions where the buyer is a trust, a company or an SMSF buying commercial property.
• Evidence of your deposit and costs, and where they are coming from.
• Outgoings evidence: the last rates notices, land tax assessment, insurance and strata levies.

Frequently asked questions

How much deposit do I need for a commercial property?

Usually 20–35% of the purchase price, because commercial LVRs top out between 65% and 80% depending on the property, the lease and the location. On top of the deposit you need transfer duty, legal and due diligence costs, and any lender fees, which is why the calculator above shows total upfront cost rather than just the deposit.

Can I use my SMSF to buy a commercial property?

Yes, and it is one of the more common structures we arrange. An SMSF can buy business real property, and unlike residential, your own business can lease it from the fund at market rent. The lending rules, LVRs and paperwork all differ from a standard purchase. We cover them on our SMSF commercial property loans page.

Why is the loan term shorter than the repayment period?

Commercial facilities are usually written for 3–5 years, but the repayments are calculated over a 15–25 year amortisation. At the end of the facility term the loan is reviewed, refinanced or extended. More lenders now offer 30-year terms with no annual review, which removes that renewal risk. Ask for it by name.

Do commercial lenders charge higher interest rates?

Generally yes, and the fees are higher too. Commercial pricing is set deal by deal rather than off an advertised rate card. It moves with the property type, the lease, the LVR and the strength of the borrower. So this calculator asks for your own quoted rate instead of showing one as fact.

What if the property is vacant, or I am buying it for my own business?

Both can be funded. A vacant property is assessed on its market rent potential rather than actual income, usually at a lower LVR. If you are the occupant, the lender looks at your business’s trading performance instead of a tenant’s. Lenders call this an owner-occupier or “going concern” assessment, and it often gets you a better LVR than an investment purchase.

How long does commercial finance take to settle?

Three to six weeks from submission to approval is normal, plus valuation and documentation time. Development and construction deals run longer and work differently, which we cover under property development finance. The biggest variable is how complete the submission was when it went in.

Soren Financial operates under Finsure Finance and Investments Pty Ltd, Australian Credit Licence 384704. Credit Representative 527 161. Every figure on this page is an estimate only and is not a quote and not credit advice. Your actual repayments, LVR, costs and eligibility depend on the lender, the property, the lease and your circumstances.