A commercial loan application is assessed differently to a residential home loan. Lenders want to see that the property will generate income, that your business can service the debt, and that the security being offered matches the risk they're taking on.
In Geelong, we see applications for everything from warehouses along the Princes Highway to strata title retail units in the CBD and office buildings near Deakin University. Each property type comes with its own valuation and serviceability expectations, and the strength of your application depends on how clearly you can show the lender what they need to see.
What a Lender Looks at in a Commercial Loan Application
Lenders assess commercial finance applications based on serviceability, security, and the borrower's equity position. Serviceability means the income your business generates or the rental income the property will produce. Security refers to the property itself and any additional collateral you're offering. The loan amount, loan structure, and commercial LVR all shift depending on these factors.
Consider a logistics business looking to purchase a warehouse in Breakwater. The business has been operating for six years with consistent revenue, and the property is already tenanted on a three-year lease. The lender will review the lease agreement, the tenant's payment history if available, and the business financials to confirm cash flow can cover the loan repayments. If the business is also offering a residential property as additional security, that may reduce the interest rate or allow a higher borrowing amount.
Documents You'll Need Before Submitting
You'll be asked for business financials, tax returns, a copy of the contract of sale, and details of the property including any lease agreements if it's tenanted. Most lenders want two years of business tax returns, recent BAS statements, and a profit and loss statement. If you're buying commercial land or an off-the-plan development, a quantity surveyor's report or building contract may also be required.
For a property investment purchase, the lender will also want a commercial property valuation completed by a valuer on their panel. This happens after the contract is signed but before settlement. The valuation determines how much the lender is willing to advance, and it's not uncommon for the valuation to come in below the purchase price, particularly in regional areas where comparable sales data is limited.
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How Serviceability Is Calculated for Commercial Property Finance
Serviceability is calculated using either your business income or the rental income the property produces, depending on the loan structure. If you're buying an industrial property that's already leased, the lender will typically use the rental income to assess the loan. If the property is vacant or you're buying commercial property to occupy yourself, they'll rely on your business financials.
In a scenario where a Geelong-based professional services firm is purchasing an office building in Newtown to occupy, the lender will look at the business profit after tax, add back depreciation and interest, and assess whether the adjusted figure can cover the proposed loan repayments. They'll also factor in a buffer, usually around 2% to 3% above the actual interest rate, to ensure the business can still service the debt if rates rise. This is where businesses with variable income or inconsistent profitability run into trouble, even if they have strong equity.
Secured Commercial Loan vs Unsecured Commercial Loan
A secured commercial loan is backed by property or other assets, which allows lenders to offer lower interest rates and higher loan amounts. Most commercial real estate financing falls into this category. An unsecured commercial loan doesn't require property as collateral, but the interest rate will be higher and the loan amount lower, usually capped based on your business turnover and credit profile.
If you're expanding your business or upgrading existing equipment and don't want to tie up property, an unsecured option might work for smaller amounts. But for any significant purchase like buying commercial land or a retail premises, a secured loan is the standard approach. You can often structure the loan with flexible repayment options, including interest-only periods or a revolving line of credit, depending on your cash flow needs.
What Happens If the Valuation Comes in Low
If the commercial property valuation comes in below the contract price, the lender will only advance funds based on the valuation, not the purchase price. That means you'll need to cover the shortfall with your own funds or renegotiate the contract with the vendor.
This happens more often with commercial property investment purchases in areas where recent sales are sparse. A strata title commercial unit in a converted building may not have direct comparables, which can make valuers conservative. If you're already working with a commercial Finance & Mortgage Broker, they can sometimes request a second valuation or provide additional sales evidence to support the contract price, but there's no guarantee the outcome will change. The safest approach is to factor in a potential valuation gap when working out your deposit and settlement funds.
Fixed Interest Rate or Variable Interest Rate
Commercial interest rates are typically higher than residential rates, and you'll have the option to fix or stay variable. A fixed interest rate locks in your repayment for a set term, usually between one and five years, which helps with budgeting and protects you if rates rise. A variable interest rate gives you flexibility, including the ability to make extra repayments and access redraw if the loan structure allows it.
Many commercial borrowers split the loan, fixing a portion and leaving the rest variable. That approach balances certainty with flexibility, particularly if you expect to refinance or sell the property within a few years. If you're using a commercial construction loan or commercial development finance, the loan will usually start on a variable rate during the construction phase, with the option to fix once the build is complete and you move to principal and interest repayments.
Timing Your Application and Settlement
Commercial loan settlements generally take longer than residential transactions. Lenders need time to complete valuations, review lease documents, and assess business financials. If you're applying for commercial bridging finance to settle quickly while longer-term funding is arranged, that can speed things up, but it comes at a higher interest rate and is usually only available for a short period.
If your contract has a 60-day settlement and you're waiting on a valuation, leasing documentation, or final business tax returns, the timing can get tight. We regularly see this with Geelong buyers purchasing retail property finance or warehouse space where tenants are in place but the lease documentation hasn't been formalised. The lender won't proceed without a signed lease or an agreement for lease, so getting that sorted early keeps the process moving. You can link up with our team to map out a realistic timeline before you sign the contract.
Call one of our team or book an appointment at a time that works for you. We'll review your business structure, the property you're looking at, and the documents you'll need to get your application across the line.
Frequently Asked Questions
What documents do I need for a commercial loan application?
You'll need two years of business tax returns, recent BAS statements, a profit and loss statement, the contract of sale, and any lease agreements if the property is tenanted. Lenders may also request a commercial property valuation and a quantity surveyor's report for construction or development finance.
How do lenders calculate serviceability for commercial property loans?
Lenders use either your business income or the rental income from the property, depending on whether it's tenanted or owner-occupied. They'll add back depreciation and interest to your profit, then apply a buffer of around 2% to 3% above the actual interest rate to test your ability to service the loan if rates rise.
What happens if the commercial property valuation is lower than the purchase price?
The lender will only advance funds based on the valuation, not the contract price. You'll need to cover the shortfall with your own funds or renegotiate with the vendor. This is more common in regional areas or with commercial properties that have limited comparable sales.
Should I fix or keep my commercial loan on a variable rate?
A fixed interest rate provides certainty and protects you from rate rises, while a variable rate gives you flexibility to make extra repayments and access redraw. Many borrowers split the loan to balance both benefits.
How long does a commercial loan application take to settle?
Commercial loans take longer than residential loans due to valuations, lease reviews, and business financial assessments. Typical settlement is 60 to 90 days, though commercial bridging finance can speed up the process if you need to settle sooner.
