How Commercial Property Loans Work: Deposits, Rates and Eligibility
Commercial Property
How it works · Deposits and LVR · Lease doc and low doc
How Commercial Property Loans Work: Deposits, Rates and Eligibility
Buying business premises works differently to buying a home. Commercial property loans use different deposits, different rate mechanics and a different rulebook, and the path you take depends on your documents and the security. This guide walks through how they work, what lenders assess, and how commercial lending compares with a home loan.
Quick Answer
A commercial property loan is finance used to buy or refinance premises for business use, from offices and warehouses to shops and factories. It works differently to a home loan: bigger deposits, negotiated rates, shorter terms and a separate rulebook. Your path depends on your documents and the security.
What is a commercial property loan and how does it work?
A commercial property loan is finance used to buy, refinance or release equity in property that is used for business rather than as a home. In practice that means offices, shops, warehouses, factories, medical suites and mixed-use sites. It runs on the same core idea as any mortgage, a lender advances funds secured against the property and charges interest over a term, but the deposit, the way the rate is set, the loan term and the legal protections all differ from a home loan. You can see the full range of commercial property loans we arrange, but the mechanics below apply whichever lender you end up with.
The path you take depends mostly on two things: the strength of the income you can document, and the type of security you are buying. Get those two right and most of the process falls into place.
To put the scale in context, Australian banks (ADIs) held about $480.2 billion in commercial property exposures as at the December 2025 quarter, up 8.8 per cent year on year, against approved exposure limits of $518.9 billion (APRA). On the construction side, the value of non-residential building approved was $10.83 billion in May 2026, up 41.0 per cent in the month on a seasonally adjusted basis (ABS). These are bank aggregates and a monthly building-approvals indicator, not the cost of any individual loan; they exclude non-bank and private lenders, the approvals series is volatile, and both can be revised as newer data publishes.
How much deposit do you need? LVR and equity explained
Most commercial purchases start with a larger deposit than a home loan, because lenders cap the loan to value ratio (LVR) lower and there is no lenders mortgage insurance to bridge a small deposit. Your deposit is simply the gap between what the lender will advance and the price you agree to pay, plus the costs on top.
You do not always need that gap in cash. Equity you already hold in another property can stand in for part of the deposit, either by using a second facility or by offering additional security, which is where a second mortgage can release equity you already hold rather than tying up more cash. The stronger and more standard your security, the further a lender will stretch, which is why some higher-LVR commercial deals are possible while others are not, and why freehold versus leasehold security changes the answer. If you want a sense of what you can borrow for a commercial purchase, the security and your documents drive it more than any headline number.
From our broking, indicative
Here is what the deposit and LVR conversation usually looks like in the deals we place, so you can plan with realistic edges rather than a single number.
- Owner-occupied, full doc, standard security: banks commonly lend up to around 70 to 80 per cent LVR, so the deposit conversation usually starts near 20 to 30 per cent plus costs.
- Lease doc and low doc paths: ceilings commonly land lower, around 65 to 75 per cent, depending on security and the strength of the lease.
- Specialised security, such as purpose-built assets: expect materially lower ceilings and case-by-case appetite.
- Time to settlement: bank paths commonly run 4 to 8 weeks; non-bank paths commonly 1 to 3 weeks.
- What gets deals declined first: interest cover that fails on the actual lease terms, unresolved ATO arrears, a security the lender reads as specialised, and GST surprises close to settlement.
Indicative only, from Switchboard Finance broking experience across commercial deals, as at July 2026. Not a quote, an offer, or an approval likelihood; lender policies differ and change.
How are commercial property loan interest rates set?
Commercial rates are built from the ground up rather than advertised on a board. A lender starts with a base or reference rate and adds a margin priced to your specific deal, so the rate you are offered reflects the risk the lender sees, not a published sticker price.
What moves the margin is fairly consistent: the LVR, the quality and type of security, the strength of the lease or your trading figures, the loan size, the loan term and the documentation path you use. A clean, low-LVR, owner-occupied deal on standard security prices very differently to a high-LVR investment purchase on a short lease. You can usually choose between a variable rate that moves with the market and a fixed rate that locks your repayment for a set period, each with trade-offs around flexibility and certainty. Broader movements in official interest rates feed into base rates over time, which is one reason commercial pricing shifts even when your own file does not. For where the market sits right now, see our regularly updated guide to current commercial property loan rates.
What do lenders assess on a commercial property loan?
Two businesses can chase the same building and get opposite answers, because commercial lenders weigh the borrower, the income and the security together rather than running a single tick-box test. In the deals I see, the security type and the strength of the lease do more of the talking than the headline rate.
The core of it is serviceability: can the income cover the repayments with a sensible buffer? On a tenanted property that turns on interest cover, the ratio of net rental income to loan repayments, measured on the actual lease terms rather than an optimistic forecast. On an owner-occupied purchase it turns on your business cash flow. Alongside that, the lender reads the security, how easily it could be sold and re-let if things went wrong. This is what a credit desk checks first, and how the income test runs in practice.
What a strong application shows
- Current financials, or a firm lease that comfortably covers the repayments
- Interest cover that holds on the actual lease terms, not a forecast
- Standard security a valuer can compare easily
- A clear business purpose and a clean tax position
What makes lenders hesitate
- Interest cover that only works on optimistic assumptions
- Unresolved ATO arrears or out-of-date financials
- Specialised or single-purpose security
- A short or weak lease on an investment purchase
Full doc, lease doc and low doc: the documentation paths
Which documentation path fits you? It depends on what income evidence you can produce and which lender lane you are in. A full doc path suits established businesses with current financials and the strongest borrowing position. A lease doc path, where the loan is assessed mainly on the rent under the property's lease, suits investment purchases where the tenant does the heavy lifting. A low doc path suits borrowers who can show trading through BAS or an accountant's declaration but cannot produce full financials, and the non-bank lane suits deals a bank cannot fit at all.
One current change worth noting: from 13 July 2026 the Consumer Data Right extends to non-bank lenders, which over time makes it easier to share verified financial data with lenders outside the majors. We cover lease doc lending in detail and the CDR and non-bank commercial lending change separately. If you want help matching a path to a lender, that is the core of arranging a commercial property loan.
How do commercial property valuations work?
A commercial valuation decides how much the lender will actually lend against, and it is usually based on the lower of the purchase price and the assessed value. If a valuer comes in under the price you agreed, the lender lends against the lower figure, and you cover the difference, which is why valuations can quietly reshape a deal.
On tenanted property, valuers often work from the income: they take the net rent and apply a capitalisation rate, the market yield for that type of asset, to arrive at a value (a lower capitalisation rate implies a higher value, and vice versa). The type of security matters too. Standard assets with plenty of comparable sales are straightforward; specialised security valuations are far more cautious. Where a deal involves a site to build on rather than a finished building, it usually moves across to development finance for the land-plus-build cases. For the underlying ratio, see our glossary entry on loan to value ratio.
Commercial property loans vs residential home loans
Placed side by side, commercial and residential lending differ on almost every term that matters. The comparison below is the one the individual pieces rarely make in one place, and it explains why a home-loan mindset can trip you up on a commercial purchase.
If you are used to the home-loan side of the ledger, the Moneysmart guide to home loans is a useful reference point for the residential column, and the loan to value ratio works the same way in both, only the ceilings differ.
Owner occupied or investment, buy or lease?
Whether to own or keep renting your premises is a business decision as much as a finance one, and the honest answer is that it depends on how long you will stay, where your capital works hardest, and how specialised the site is. Owner-occupied purchases are assessed on your trading figures; investment purchases lean on the tenant and the lease.
When buying your premises tends to fit
- You will occupy the site for the long term
- Rent is climbing and ownership steadies your costs
- You can show the income to service the loan
- The building suits your operation without heavy fit-out risk
When leasing may still win
- You expect to outgrow or relocate the site
- Your capital works harder inside the business
- The premises are specialised and hard to resell
- Flexibility matters more than ownership right now
If you already lease the site, buying it is a well-worn path, and we cover both the buy or keep leasing decision and the specifics of buying the premises you lease. Once you own, releasing equity later through an equity release or refinance is a separate step you can plan for.
How commercial property lending is regulated
Business-purpose property loans sit largely outside the consumer credit rulebook, which changes the protections you can rely on. Under the National Credit Code, a loan taken out predominantly for business purposes is not regulated consumer credit. ASIC's guidance puts it plainly: "predominantly" means more than a 50 per cent consumer component, and loans to companies are not caught at all, only loans to natural persons and strata corporations are (ASIC INFO 101). The catch worth knowing is that borrowing as an individual to invest in residential property is still regulated, so the exclusion is about purpose, not simply labelling a loan "commercial". This is general information, not legal advice.
Because commercial loans sit outside that regime, ASIC describes them as having the lowest level of legal protection, including loans to small businesses (ASIC INFO 207). That does not mean no protection: the ASIC Act still prohibits unconscionable conduct, misleading or deceptive conduct, and unfair terms in standard-form small business contracts. Courts, though, set a high bar for unconscionability in commercial dealings, on the view that businesses can generally look after their own interests. Again, this is a description of the framework, not legal advice.
If a dispute cannot be resolved with the lender directly, small businesses can often take it to the Australian Financial Complaints Authority (AFCA), whose rules define a small business as a primary producer or other business with fewer than 100 employees. Access depends on the lender being an AFCA member: lenders that only write commercial loans are not required to join, though some do voluntarily, so it is worth checking before you sign. AFCA's rules govern and can change.
One more piece of the legal picture: commercial lenders commonly take a general security agreement (GSA), a charge over your business assets that is registered on the Personal Property Securities Register (PPSR). In plain terms, it means the loan can be secured against more than just the building. If a bank cannot help, some businesses look at private lending options for a first commercial move, usually at a higher cost.
The costs and fees beyond the interest rate
The rate is only part of the cost of a commercial purchase, and the extras are easy to underestimate. Beyond the deposit and repayments, expect application or establishment fees, valuation fees (which are higher and more involved than a home valuation), legal costs on both the loan and the conveyancing, and discharge fees when a facility ends. Line-fee and review-fee structures also appear on some facilities.
One note on tax and duties: commercial purchases can attract GST depending on how the sale is structured, and stamp duty is a state-based cost that varies with where the property sits. These are not finance costs, and they can move the total meaningfully, so they belong with your accountant rather than a rule of thumb. We keep the stamp duty on commercial purchases detail separate for that reason. The point is to budget for the full stack of costs, not just the rate.
The application process and timeline
A commercial purchase runs through a fairly predictable sequence, and knowing it helps you avoid the delays that catch buyers out.
- Get indicative terms or pre-approval so you know your budget and structure before you commit.
- Sign the contract and pay the deposit, ideally with a finance condition that gives you room.
- Submit the full application with your income evidence and details of the security.
- The lender orders a valuation and assesses serviceability and security.
- Formal approval and a loan offer are issued, subject to any conditions.
- Legal documents are completed and the loan settles.
What slows deals down is consistent: interest cover that fails on the actual lease terms, unresolved ATO arrears, a security the lender reads as specialised, and GST treatment surprises close to settlement. Sorting those early is the difference between a smooth run and a scramble, which is why knowing what a credit desk checks first and getting pre-approval ready pays off. When you are ready, you can talk to us about a commercial property loan.
Can an SMSF buy commercial property?
Yes, a self-managed super fund can buy commercial property with a loan, but the rules are strict and the structure matters. Borrowing is usually done through a limited recourse borrowing arrangement, where the property is held in a separate bare trust and the lender's recourse is limited to that asset. A feature that sets commercial apart from residential is that a fund can buy business real property from a member and lease it back to a related business at market rent, which is not permitted with residential property.
Because this sits at the intersection of lending and superannuation law, it is a rules-first area where the right setup and independent advice matter more than the rate. We cover SMSF commercial property loans and the SMSF non-bank path in dedicated guides, and this pillar stays deliberately general on strategy.
Commercial property lending rewards preparation. The deposit is larger, the rate is negotiated rather than advertised, the term is shorter and the legal safety net is thinner than on a home loan, but for a business that can show its income and offer clean security, the path is well worn. The real levers are your documentation, the strength of the lease or trading figures, and the type of security you bring.
Key takeaway: match your documentation path and security to the right lender lane early, and a commercial purchase becomes a process, not a gamble.Frequently Asked Questions
A commercial property loan works by advancing funds secured against property used for business, then charging interest on the balance over the term. The mechanics mirror a home loan, but with a larger deposit, a negotiated rate, a shorter term and a business-purpose rulebook rather than consumer credit rules. What you can borrow turns on your income documents and the security. See our plain-English definition of a commercial property loan for the essentials.
To get a commercial property loan you generally line up your income evidence, choose a documentation path, and match the deal to a lender whose appetite fits your security. Strong, current financials or a solid lease make approval easier; gaps in either narrow your options. Getting indicative terms before you sign a contract is the single biggest time-saver. Here is how to get pre-approval ready.
In Australia, a commercial purchase usually needs a larger deposit than a home loan, because lenders cap the loan to value ratio lower and there is no lenders mortgage insurance to cover a small deposit. Equity in another property can stand in for some of the cash. The exact figure depends on the security and your documentation path. We cover the higher-deposit and higher-LVR cases separately.
The minimum deposit for a commercial property loan commonly starts around 20 to 30 per cent of the price plus costs for standard security on a full doc path, indicative and varies by lender. Lease doc, low doc and specialised security paths generally need more, and equity in another property can stand in for part of the cash. There is no lenders mortgage insurance to bridge a smaller deposit on commercial security. Our commercial property loan deposit guide maps the figure by tier.
The maximum loan to value ratio on a commercial property loan is generally lower than on a home loan, and it moves with the documentation path and the type of security. Owner-occupied purchases on standard security with full financials sit at the higher end of the commercial range, while lease doc, low doc and specialised security typically sit lower. Because it is policy and security dependent, treat any single figure as a starting point, not a rule. The type of security, including freehold versus leasehold, makes a real difference.
Commercial property loan interest rates are set by taking a lender's base rate and adding a margin priced to your specific deal. The margin reflects the LVR, the quality and type of security, the strength of the lease or your trading figures, the loan size and the documentation path. That is why two borrowers rarely see the same rate, and why commercial pricing is negotiated rather than advertised. For current market pricing, see our guide to commercial property loan rates.
Generally no. A loan taken out predominantly for business purposes falls outside the National Credit Code, which is why commercial borrowers rely on the ASIC Act's protections against unconscionable and misleading conduct instead of consumer credit rules. Loans to companies are not caught at all; the exclusion turns on purpose, not just the label. When a bank cannot help, some businesses look at private lending options. This is general information, not legal advice.
Commercial property loans are not necessarily harder, but they are assessed differently and reward preparation more heavily. Lenders weigh the property's income and your business cash flow together, cap the LVR lower, and scrutinise the security type, so a clean lease or strong financials count for a lot. A messy file is where commercial deals stall. Knowing what a credit desk checks first closes most of the gap.
Commercial property loan terms are usually shorter than a home loan's, and they often include review or renewal points where the lender reassesses the facility. Amortisation can run over a longer notional period even when the term itself is short, which affects your repayments and any refinance timing. The structure depends on the lender and the security. Our guide to property security for business loans explains how structure and security interact.
The documents you need depend on the path: a full doc application uses tax returns, financials and BAS, a lease doc application leans on the lease and rental evidence, and a low doc application substitutes an accountant's declaration or BAS for full financials. Cleaner, more current evidence generally unlocks better terms. Non-bank lenders accept some evidence a bank cannot. See how lease doc lending works in detail.
Yes, a self-managed super fund can buy commercial property with a loan, typically through a limited recourse borrowing arrangement held in a separate trust. Business real property can also be purchased and leased back to a related business at market rent, which is not permitted with residential property. The rules are strict and the setup matters, so specialist advice is essential. We cover SMSF commercial property loans separately.
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