Private commercial property loans

Commercial property is where a lot of business owners first meet private lending. A purchase contract has a settlement date, the bank’s approval drags on or the valuation comes in under the price, and suddenly the deposit is at risk. Private money is often the difference between settling and losing the deal.

What private commercial loans are used for

Buying premises. Owner-occupiers buying the building they trade from, or investors buying a tenanted asset, where the bank won’t settle in time or won’t lend at all.

Refinancing. A commercial loan has expired, the bank won’t roll it, or the business has been through a rough patch and the bank wants out.

Releasing equity. The building has grown in value and the business needs capital for stock, a contract, a tax bill or expansion.

Completing works. Fit-out, strata subdivision or improvements that will lift the value before a sale or refinance.

How commercial property is assessed

Commercial security is assessed differently from a house. The lender’s valuer looks at:

• Use and zoning, and whether the building suits a broad range of occupiers
• Tenancy, including the lease term remaining, rent and the tenant’s strength
• Location and access, such as main road frontage, parking and truck access for industrial
• Condition and compliance, including any defects, asbestos or fire safety issues
• Saleability, meaning how long it would realistically take to sell

A general-purpose warehouse in an established industrial estate is very fundable. A purpose-built facility with a narrow buyer pool is harder and attracts a lower LVR.

Typical structures

Situation	Usual structure
Buying with a deposit, bank can’t settle	Private first mortgage over the purchase, refinanced later
Building already has a bank loan	Second mortgage or caveat loan for the extra funds
Not enough deposit	First mortgage over the purchase plus a second mortgage over a home or other property
Loan expired or called in	Private first mortgage to pay out the existing lender

Costs at settlement to plan for

Buying commercial property involves more than the price. Plan for stamp duty (or land transfer duty) in your state, GST where the sale isn’t a going concern, legal and due diligence costs, and the private loan’s own costs. If GST at settlement or withholding applies, the timing of those payments matters for how much you need to borrow.

We never quote rates, but we’ll help you set out every cost so you know exactly how much the loan needs to cover.

The bank refinance exit

Most private commercial loans are designed to be refinanced. To make that smooth:

1. Keep the building’s lease and rent records tidy
2. Get the business’s financials lodged and its ATO accounts current
3. Speak to a commercial broker or your bank a few months before the private loan ends
4. Keep a clean repayment record on the private loan

A worked example: buying the building you rent

A Brendale cabinet maker had leased the same factory for nine years when the landlord offered to sell it for $1.6 million, with a 45-day settlement and a discount for a quick, unconditional contract. The bank liked the deal but needed eight weeks and a full valuation, and wanted a 30 percent deposit.

A private lender agreed to fund the purchase with a first mortgage over the factory plus a second mortgage over the owner’s home, which together provided enough security without a large cash deposit. The lender’s valuer inspected within a week, and settlement happened on day 40.

The term was twelve months. That gave the business time to lodge its year-end accounts showing the saving from no longer paying rent, at which point the bank refinanced the factory alone and released the home from the security.

Questions lenders ask about commercial security

• What’s the zoning, and does the current use comply?
• Is it leased? If so, to whom, on what rent, and for how long?
• Are there any environmental concerns, such as underground tanks or contamination?
• Is it strata titled, and are levies and building insurance in order?
• How easy would the building be to sell or re-lease in a downturn?
• Are there outstanding council notices or building defects?

Having these answers ready, along with any recent valuation or lease documents, shortens the approval and can improve the amount a lender will offer.

Talk to us about your commercial deal

Tell us about the property, the amount and the settlement date. We’ll come back quickly with whether a private lender will fund it and how it would be structured. There’s no credit check when you first enquire, and your details go to a person, not a lead list.

Please include the property type, its address or suburb and any lease details, so we can match it to a lender who likes that kind of building. See if you qualify, or read about commercial and industrial security and then get in touch.