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Commercial Lending

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Commercial lending involves the financing of commercial properties and/or the refinancing of commercial loans.

Commercial loans finance properties such as:

  • Warehouses
  • Offices
  • Factories
  • Rental space
  • Show rooms
  • Medical Facilities
  • Rural Property
  • Basically any non-residential property

Whilst many of the basic residential policies also apply to commercial lending, there are also many commercial lending policies that are unique to commercial lending, i.e.

Interest Rates

In the main, the interest rate charged is made up of a base rate, i.e. a wholesale rate, e.g. BBSY plus a risk margin.  The lender determines what risk grading you as a customer represents and then adds that to the wholesale rate.  Saying this, there are a number of lenders that give the same commercial rate regardless of what risk you represent to the lender .

Generally commercial rates are slightly more expensive than residential lending rates, this interest rate premium can be anywhere from 0.25% to 3-4%.

Fees

Commercial lending establishment fees can be far more expensive than residential fees.  An application fee of 0.5% of the loan amount is common.  Due to competition some lenders may just charge a nominal fee of $500.  The lender will also pass on the fee they have incurred to value the property.  The valuation can be thousands of dollars.  The more expensive the commercial property, the more expensive the valuation fee. 

Other fees that may apply include

  • Legal fee for the production of loan contracts, mortgages and guarantee documents
  • Trust vetting fees if the borrowers involve a trust
  • Ongoing monthly or quarterly fees, e.g. 0.2% of the loan amoun

Loan Fees

  • The average maximum term of a commercial loan is 15 years as opposed to a term of 30 years applied to a residential loan.
  • Regardless of whether your repayment conduct is exemplary or not, the lender may insist on reviewing your financial situation annually. This involves providing all of your financial data annually, e.g. Tax Returns

Lending Ratios 

  • As a rule of thumb, lenders will generally lend up to a maximum of 70-75% of the value of a commercial property, for the right client and the right property a lender may actually lend up to 90% of commercial property value.
  • The lender may insist that the commercial property is revalued say every 3 or 5 years

A word of warning – the cheapest rate may not always be the best option to go for.

Related: Business & Commercial Loans 

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