NO LMI (Lender’s Mortgage Insurance)

Even without having a huge deposit, purchasers are able to purchase residential properties with 5 ~ 20 % deposit with LMI. However, commercial loans do not have LMI which means buyers have to come up with quite a big amount of deposit to apply for loans. Minimum deposits vary from lenders and single security or residential combined securities. With single security, max LVR is between 70% and 75%.

Lower Borrowing Capacity

As it usually takes some time to have tenants in commercial properties, the bank considers if the properties are occupied or empty, third-party tenants or owner operating business, outgoing fee and etc. As a result, lenders assess commercial loan serviceability at a higher level than residential loans. Therefore, it is recommended to contact your mortgage brokers before purchasing commercial properties as we can give rough price guideline.

Higher Interest rate

Not like straightforward home loan rates, commercial loan rates are generally higher as banks consider risk factors of the business, the location, the proposed business of the properties. Also, banks check the credit rating of the borrowers to apply to its interest rate.  The commercial loan also offers a variable rate, fixed rate, split rate, principal and interest loan or interest only loan like what residential loan offers.

Higher Setup Fees

Unlike most home loan applications, most lenders will pass the cost of the valuation fee for commercial loan applications to the borrower. Of course, some home loan lenders may pass valuation fees but the fees are usually cheaper than commercial valuation fees.  In addition to the valuation fee, there are application fees as well as monthly account fees that are usually charged to the borrower.

Bank Reviews

For large loans (usually over 1 million), lenders may review borrower’s financial status on yearly basis (sometimes quarterly basis) to check if the business is in a good position.

Shorter Loan Term

Usually, lenders only lend up to 25 years for commercial loan term unless the loan is secured with clients’ residential properties. Some banks only lend for 15 years only.

Loan department

Usually, when customers apply for commercial loans through brokers, they may need to communicate directly with banks due to their complexity. Also, some banks only accept direct communication with customers after the initial lodgement through brokers. When customers apply for residential loans, commercial loan rate may be applied if loan entities are not personal such as:

Company titles

Trust structures with the company as beneficiaries

Trust structure with the individual as beneficiaries (some lenders apply residential rate)

GST

If your business is registered for GST, you may need to pay for the GST portion of the property from your own fund as lenders usually do not fund the GST but you may be able to claim the GST after purchase. This may vary in different cases.