Article
How Banks Assess Commercial Property Finance
Written by Enhao Wang, Principal Broker at Bridle Partners · 5 min read
Commercial property finance is assessed differently from a standard home loan.
For residential lending, lenders usually focus heavily on personal income, living expenses, credit conduct and the property valuation. Commercial property finance is broader. Lenders will assess the borrower, the property, the tenant profile, the income stream, the loan purpose, the ownership structure and the exit strategy.
For business owners and investors, this means the finance structure should be considered before signing the contract or approaching the bank.
Key factors lenders usually assess
- Property type: office, retail, industrial, warehouse, mixed-use, medical or professional suites, specialised commercial property and freehold going concern assets.
- Owner-occupied vs investment use: for owner-occupied commercial property, lenders usually assess the trading business that will occupy the premises. For investment commercial property, lenders focus more heavily on lease and tenant quality.
- Lease and tenant profile: lenders may consider lease term remaining, tenant quality, rental income, whether rent is at market level, vacancy history, outgoings structure and lease expiry risk.
- Valuation: commercial valuations may consider capitalisation rate, market rent, comparable sales, lease profile, vacancy risk, property condition, zoning and alternative use potential.
- Loan-to-value ratio: commercial LVRs vary significantly depending on the asset type, borrower, lender and transaction.
- Borrower structure: commercial property may be purchased through individuals, companies, trusts, SMSFs, unit trusts or corporate trustee structures.
- Servicing and cash flow: lenders may review financial statements, tax returns, BAS, management accounts, bank statements, rental income, existing debt, guarantees and related party arrangements.
- Purpose and exit strategy: lenders want to understand why the property is being purchased and how the loan will be repaid.
How Bridle Partners helps
- Assessing the borrower structure
- Reviewing the property and lease profile
- Identifying potential lender concerns
- Considering suitable lender options
- Preparing the credit story
- Coordinating lender, client, accountant, solicitor and valuer requirements where required
FAQs
- Can I borrow 80% for commercial property?
- It depends on the property type, borrower strength, security, servicing and lender policy. Some transactions may support higher leverage, but commercial LVRs vary widely.
- Is commercial property lending harder than residential lending?
- It can be more complex because lenders assess both the property and the borrower's business or investment position.
- Can I buy commercial property through a trust?
- Yes, in some cases. However, lender policy, guarantees, tax advice, legal structure and servicing all need to be considered.
- Do lenders assess commercial leases?
- Yes. For commercial investment property, lease strength and rental income are key parts of the assessment.
Planning a commercial property transaction? Speak with Bridle Partners before approaching a lender.
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