Commercial loans: what you need to know
Investing in commercial property comes with a different set of advantages and disadvantages to investing in residential real estate. Commercial properties typically offer a higher rate of return but they can also have longer vacancy periods which can put pressure on investors. As such, commercial property loans are assessed differently to residential home loans.
One of the main differences is that the amount you can borrow is largely determined by the type of property and the purpose of the loan. Purchasing for investment, for example, is considered lower risk than purchasing your own business premises.
Commercial properties as security
Properties used primarily for business purposes and zoned commercial will require a commercial loan to purchase. At emoney, acceptable security types include:
- Shop fronts
- Offices
- Industrial units
- Factories, warehouses or workshops
- Mixed use, such as shop and residence
- Multiple residential units in one development
- Medical suites
Evidence of income
Commercial lending is not covered by the National Consumer Credit Protection Act (NCCP). Consequently, there are fewer regulations around verifying a commercial borrower’s income than a residential borrower’s income. Of course, you will still need to show that you can afford your regular loan repayments.
At emoney, we specialise in low document and lease document commercial loans. Evidence of income we would require for these two types of loans includes but is not limited to:
- Low doc: a declaration of your annual income, a letter from your accountant, bank statements and/or BAS statements.
- Lease doc: proof that rental income from the investment lease is more than the interest repayments.
General security agreements (GSA)
Be aware that some lenders will require you to enter into a general security agreement (GSA) when you apply for a commercial loan. GSAs replaced fixed and floating charges and debentures in 2009, and function to mitigate the lender’s risk, giving them security over all the borrower’s assets. At emoney, our commercial loans only take the commercial property as security and we do not require the borrower to sign a GSA.
Annual reviews
Many lenders require borrowers to undergo annual financial reviews to ensure they can continue to repay their loan. In some cases, the security property is also revalued on an annual basis. Make sure you have a good understanding of your terms and conditions before entering into a commercial loan as poor security revaluation could result in your lender increasing the margin on your loan.
At emoney, many of our commercial loans are set and forget, with no annual reviews or revaluations required.
We always recommend you seek independent financial advice prior to making any decisions relating to your financial future.
If you’d like to find out more about applying for a commercial property loan, speak to one of our expert lending specialists on 13 SAVE.
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