A comprehensive guide to commercial loans

Understanding the nuances of commercial property loans is essential for small business owners and commercial property investors alike. Today's guide provides a general overview of the most common commercial loan criteria set by banks and non-bank lenders in Australia, along with insights to help you find the right solution for your business needs and goals. Let's dive in.

What is a commercial loan?

A commercial loan is used for a number of business purposes, from buying property to hiring staff and funding equipment.

The commercial lending space can be complicated—particularly in regards to borrowing for commercial property—as eligibility criteria vary quite significantly among lenders.

For this reason, we recommend working with a lending expert who can navigate the market on your behalf, finding you a competitive rate and suitable product.

How lenders assess your eligibility for a commercial loan

Lenders evaluate several key factors when assessing eligibility for a commercial loan. These include:

• Management experience and conduct: Your experience in managing your business and conduct during the application process (including providing documentation) can be a key consideration from lenders when approving a loan.
• Industry: Certain industries (such as medical and professional services) can obtain superior loan terms due to more appetite existing in the market.
• Credit history and score: A strong credit history with no credit impairment will qualify you to apply for lenders who offer market-leading interest rates. Poor credit conduct may result in you needing to approach alternative options with more expensive loan costs.
• Business financials: This includes your business’s profit and loss statements, balance sheets, and cash flow statements. In short, lenders look for a stable and profitable business.
• Personal financials: For small business owners, personal financial health can also be a factor, including personal income, assets, and liabilities.
• Property valuation and type: The value of the property being financed plays a crucial role in determining the loan amount. Additionally, commercial properties that have limited alternative uses can attract lower loan amounts.
• ATO conduct: Your conduct when managing your taxation plays a role when lenders decide to approve your loan.

Understanding your loan options

Full document loans

Full document loans (or full doc loans) cater to established businesses with a solid financial history, offering borrowing up to 105% of the property value for commercial spaces. These loans come with the most competitive interest rates in the market.

The maximum loan terms offered are 30 years. You can have principal and interest repayments or interest-only repayments for up to 10 years. We verify your income through your business financial statements and personal tax returns.

Low document loans

Low document loans (or low doc loans) are ideal for those seeking a more streamlined process. You can borrow up to 80% of the property value at interest rates approximately 1% higher than a full document loan.

You can have principal and interest repayments or interest-only repayments for up to 5 years. Your income is verified through BAS, an accountant’s letter, or 6 months of bank statements.

Lease document loans

Lease document loans (or lease doc loans) are tailored for commercial properties under lease, allowing borrowing of up to 70% of the property value. These loans come with interest rates comparable with a full document loan.

The maximum loan term is tied to the lesser of 5 years or the remaining lease term, meaning a current lease agreement is a must for application.

The benefit of this loan option is that the only income verification conducted is making sure that the lease income can afford loan interest payments. These loans often have interest-only repayments for their entire term, making them an attractive option for property investors.

No document loans

No-document loans (or no-doc loans) provide maximum flexibility and rapid funding, offering borrowing up to 70% of the property value with interest rates between 8% and 24% p.a.

These loans are interest-only, with terms from 6 months to 3 years. They rely on you proposing an exit strategy explaining how you will repay the loan once it expires.

This option differs from the rest in that you can offer a second mortgage over your property to secure the loan.

Eligibility and borrowing limits

At Valiant, we offer tailored eligibility criteria to suit various financial situations. For small business owners, our loan options can provide borrowing capacity above 80% of the property value.

In contrast, wage-earning investors who don't own a small business have a maximum borrowing limit of 80% for commercial properties. This reflects the appetite of lenders in the market right now.

Interest rates and loan terms

Our loan products feature competitive interest rates and flexible terms to suit different investment strategies.

Full doc and lease doc loans offer the lowest interest rates, while no doc loans have higher rates to reflect the increased flexibility and reduced documentation requirements. Low doc loans offer a balance of rate and convenience.

Our terms range from short-term solutions to long-term commitments up to 30 years.

Application process and turnaround times

Our commercial loan application process is designed for efficiency. Turnaround times vary by loan type:

• Full doc and lease doc loans: From application to settlement in between 4 and 8 weeks in most cases.
• Low doc loans: From application to settlement in between 3 and 6 weeks in most cases.
• No doc loans: We can settle in as little as 72 hours.

Features of commercial loans

Understanding the features of commercial loans is key to selecting the right financing option for your business or investment. Here are some common features you can expect with Valiant's commercial loans:

• Redraw facilities: More common than offset accounts, redraw facilities allow you to withdraw extra payments you’ve made on your loan. This feature offers flexibility and can be a financial buffer.
• Offset accounts: While less common than redraw facilities, some bank and non-bank lenders offer commercial loans with offset accounts. An offset account can help reduce the interest you pay, as it offsets the loan balance.
• Pre-approvals: We provide pre-approvals for commercial loans, giving you the confidence to shop for properties within your budget. Pre-approvals typically have a 90-day expiry, allowing ample time for decision-making.
• Split loans: Split loans divide your loan into fixed and variable segments, offering a balance between stability and flexibility. This option allows you to manage interest rate risks more effectively.
• Flexible repayment schedules: Tailoring repayment schedules to suit your business’s cash flow can be crucial. We offer flexible repayment options, including the option of monthly, quarterly, or even annual repayments, to align with your financial cycle.

These features are designed to provide flexibility, security, and convenience, ensuring that your commercial loan aligns with your specific business needs and goals.

The role of lenders and promotions in securing the best deal

Lender promotions can significantly impact the cost of finance. For instance, previous promotion offers include a 1.42% p.a discount for small business loans, as well as waived establishment and valuation fees for refinances.

A knowledgeable broker, like those at Valiant Finance, can help you capitalise on these promotions, securing the best terms for your loan.

Why choose Valiant Finance for your commercial loan

Choosing Valiant Finance means working with a dedicated team committed to finding the best financing solutions for your commercial property investments. Our personalised service, extensive loan range, and deep market understanding make us a reliable partner in your financial journey.

As the commercial property market evolves, Valiant Finance is here to support you every step of the way, offering a range of loan options and expert guidance for your investment or business needs.

Reach out to us to discover how we can help turn your property investment aspirations into reality.