Top Tips to Finance Your Commercial Property Purchase

Securing Finance Before You Make an Offer

Getting pre-approval before you start looking at commercial property gives you a clear budget and strengthens your position when negotiating. Lenders assess commercial property loans differently to residential mortgages, focusing on both your capacity to service the loan and the income-generating potential of the property itself.

Consider a PAYG professional earning $180,000 annually who wants to purchase a small office building to house their consulting business. The lender assesses their income stability, the rental return if part of the building is leased to other tenants, and whether the location supports long-term value. With pre-approval for $800,000 at a 60% LVR, they can negotiate with confidence and move quickly when the right property appears.

Why Commercial LVR Limits Differ from Residential

Commercial property loans typically allow borrowing up to 70% of the property value, compared to 80% or more for residential lending. Lenders view commercial property as higher risk because values can fluctuate with economic conditions, tenant quality, and location-specific demand. A lower LVR protects the lender if the property needs to be sold quickly.

If you're purchasing a warehouse in an industrial precinct for $1.2 million, a 60% LVR means you'll need a $480,000 deposit plus settlement costs. Some lenders offer up to 70% LVR if the property has strong tenancy or is owner-occupied, but expect stricter serviceability tests and potentially higher interest rates as the LVR increases.

How Lenders Assess Serviceability for PAYG Borrowers

Lenders calculate your ability to service a commercial loan using your verified income, existing debts, and the property's rental return if it will generate income. PAYG professionals benefit from predictable income streams, but lenders still apply stress testing at rates above the actual loan rate to ensure you can manage repayments if conditions change.

A marketing manager earning $160,000 with no investment debt applies for a $600,000 loan to buy a retail shopfront. The lender assesses their taxable income, applies a buffer rate of around 3% above the actual variable rate, and factors in the rental income from a tenant on a three-year lease. The combination of stable employment and an established tenant makes the application straightforward, with approval within two weeks.

Fixed Versus Variable Rates for Commercial Property

Commercial property finance is available with either variable or fixed interest rates. Variable rates offer flexibility with redraw facilities and the ability to make extra repayments without penalty. Fixed rates lock in your repayment amount for a set period, which suits buyers who prefer certainty or expect rates to rise.

Variable rates typically sit above standard residential variable rates, reflecting the different risk profile of commercial lending. Fixed terms range from one to five years, and breaking a fixed rate early can trigger significant costs. If you plan to sell or refinance within a few years, a variable rate gives you more room to move. If you're holding the property long-term and want stable cash flow, a fixed rate can make budgeting simpler.

You can also split the loan between fixed and variable, which provides some rate certainty while maintaining access to redraw or offset features on the variable portion. Many PAYG buyers choose this structure to balance flexibility with predictable repayments. For more on how rate structures work across different loan types, see our page on refinancing.

Loan Terms and Repayment Structures

Commercial property loans typically have terms between 15 and 30 years, though shorter terms are common for buyers who plan to refinance or sell within a few years. Repayments can be structured as principal and interest or interest-only, depending on your cash flow needs and tax strategy.

Interest-only repayments reduce your monthly commitment, which can help if the property requires fit-out costs or if rental income is covering most of the loan. However, you'll need to refinance or switch to principal and interest repayments once the interest-only period ends, usually after five years. Principal and interest repayments build equity faster and reduce the total interest paid over the life of the loan.

Some lenders offer flexible repayment options that let you adjust between structures as your circumstances change. If your business grows and cash flow improves, you can increase repayments without penalty on a variable loan. If you're also considering business loans for working capital or expansion, aligning repayment schedules across facilities can simplify your financial planning.

What Settlement Costs to Budget For

Settlement costs for commercial property include legal fees, stamp duty, valuation fees, and lender establishment costs. Stamp duty varies by state and is calculated on the purchase price, often representing a significant upfront expense. Legal fees cover contract review, title searches, and settlement coordination, and are typically higher than residential conveyancing due to the complexity of commercial transactions.

Valuation fees for commercial property are higher than residential, often ranging from $2,000 to $5,000 depending on the property type and location. Lenders require an independent valuation to confirm the property's market value and rental potential. Some lenders also charge establishment fees or ongoing account-keeping fees, so review the full fee structure before committing.

Budgeting an extra 5% to 7% of the purchase price for settlement costs gives you a realistic view of total upfront funds required. If you're purchasing equipment finance or fit-out funding at the same time, factor those costs into your overall deposit and liquidity planning.

How Property Type Affects Loan Approval

Lenders assess commercial property loans based on the type of property, its location, and the strength of any existing tenancy. Office buildings in established business districts, retail shopfronts with long-term leases, and industrial warehouses in high-demand precincts are viewed favourably. Specialty properties like medical centres, childcare facilities, or hospitality venues may attract more conservative lending terms due to limited resale appeal.

Strata title commercial properties, such as individual office suites or retail units within a larger complex, are common in metro areas and can be more accessible for buyers with smaller deposits. Lenders assess the overall health of the strata scheme, including sinking fund balances and any planned major works. A well-managed strata scheme with strong financials supports loan approval, while deferred maintenance or disputes within the owners corporation can delay or reduce borrowing capacity.

If you're looking at commercial loans for different asset classes, speak with a broker who understands how lenders assess each property type. What works for a warehouse in an industrial estate may not apply to a heritage-listed shopfront in a suburban strip.

When to Use a Commercial Mortgage Broker

Commercial property finance involves more lenders, more loan structures, and more variables than residential lending. A broker who specialises in commercial finance can access options across banks and non-bank lenders, compare interest rates and fees, and structure the loan to suit your tax position and long-term plans.

Brokers also manage the application process, coordinating valuations, financial documentation, and settlement timelines. For PAYG professionals balancing full-time work with a property purchase, having someone coordinate the moving parts reduces delays and ensures nothing falls through during the approval process.

If you're buying commercial property as part of a broader strategy that includes investment loans or SMSF loans, a broker can structure the facilities to work together rather than treating each loan in isolation. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions