How a commercial property equity line of credit works: drawing and interest, how the limit is set, and what a revaluation at review can do to it.
Property Lending Hub
Commercial Equity Line · Limits · Review
Most owners think of an equity line as money sitting in the drawer. Over commercial property it behaves more like a lease you renew: the limit is only as good as the next valuation and the next look at your lease. Here is how drawing works, how the limit is set, and what changes when the lender looks again.
Quick Answer
A commercial property equity line of credit is a revolving limit secured by business premises or an investment property, where you draw and repay as needed and pay interest only on what is drawn. The limit is set by the property, the lease and your servicing, and it is re-tested at each review, so a lower valuation or a weaker loan to value ratio can shrink it. It sits alongside the other commercial property loans we broker for self-employed owners.
Also called: commercial equity line of credit, property-secured line of credit, revolving facility secured by commercial property, business line of credit secured by real estate. They describe the same facility; the last is the phrase most often searched.
What is a commercial property equity line of credit?
A commercial property equity line of credit is a revolving limit secured by commercial property, usually your own business premises or a commercial investment property, that you can draw, repay and draw again without a new application each time. The lender takes a registered mortgage over the property, the same way it would for a term loan, and the line sits behind or beside any existing debt on that title.
Think of it as a business line of credit with a building behind it rather than your debtors or a general security over the business. Because the security is real property, the limit can be larger and the pricing sharper than an unsecured line, but the lender's view of that property now governs the facility for as long as you hold it. It is one way of using equity release without taking the money as a lump sum.
This insight is about living with the facility once it is approved: how you draw, what you pay, how the limit is set and what the lender re-tests later. Owners use these lines for uneven, recurring needs: stock ahead of a busy season, a tax bill, a fit-out stage, or a buffer while a large debtor pays late.
How does drawing and repaying work, and what interest do you pay?
You draw from the limit by transfer, much like a transaction account, and you pay interest only on what is drawn, typically calculated daily on the balance and charged monthly. When you repay, the room comes back and you can draw it again. There is usually no schedule of principal repayments, so the balance stays where you leave it until you clear it.
Most of these facilities run on interest only terms, which keeps the monthly cost low but means the debt does not reduce on its own. The interest only commercial property loan guide covers how lenders treat interest only periods on commercial security more broadly.
Does an unused limit cost anything?
An unused limit usually still costs something, because many lenders charge a line fee or facility fee on the full approved limit, not just on the drawn balance. The fee varies by lender and is typically quoted as a percentage of the limit per year, so a large limit you never touch is not free money. Ask for the line fee and the interest rate side by side before you settle on a limit size.
What happens if the line stays fully drawn?
A line that stays fully drawn for long periods starts to look like term debt without repayments, and lenders notice. In deals I've seen, the facility that causes trouble at review is the one drawn to the limit in month two and never brought back down. If the money has gone into something long-lived, a term loan is usually the better home for it, and the line can go back to doing what it does well.
How is it different from a home equity line?
A commercial equity line works the same way day to day as a home equity line, but the security, the assessment and the review are different, and those differences decide how much you get and how long you keep it. The mechanics of drawing and repaying are where the similarity ends.
- The valuation is driven by income. A commercial valuation leans heavily on the rent, the lease term and the tenant, not just comparable sales. A home is valued mostly on what similar homes sell for.
- Lending ratios are typically lower. Lenders usually cap a commercial line at a lower share of value than a residential line, indicative and varies by lender and property type.
- The facility has a shorter life. Home equity lines can run for many years untouched. Commercial lines are commonly approved for a set term with a review, typically annually.
- There are covenants. Commercial facility letters often carry conditions on value, rent cover or vacancy that a home equity line rarely has.
- The assessment is on the business. The lender reads your business financials, BAS and the property's income, not a payslip.
The practical result: a home equity line is closer to a standing arrangement, while a commercial line is a working facility the lender expects to look at again.
How do lenders set the limit?
The limit is set by the property and the lease first, then capped by what the business can service if the full limit were drawn. Both tests have to pass; the lower answer wins.
- Value the property. A panel valuer values the premises or investment property, often on an income basis for leased property.
- Apply the lending ratio. The lender applies its maximum loan to value ratio for that property type. Indicative ceilings on commercial lines typically sit lower than residential lending, often somewhere around 50 to 70 per cent of value, varies by lender, location and asset type.
- Read the lease. Who the tenant is, how long is left and whether the rent covers the debt can move the ratio up or down. The guide to how your tenant sets your LVR explains this step in detail.
- Subtract existing debt. Any loan already on the title comes off the top before the line is sized.
- Test servicing. Many lenders assess repayments as if the line were fully drawn, at a buffered rate, against the business's evidenced income.
What lenders actually look at first is the lease: a long lease to a solid tenant supports a bigger limit than a vacant building with a better address. If you want to know how much equity a particular commercial property can release before you decide on a line or a lump sum, the commercial property equity release insight covers that question.
What changes at review when the security is commercial property?
At review the lender can order a fresh valuation, and if the value has fallen or the lease has weakened, an LVR covenant can shrink the limit even when you have met every repayment. That is the part of a commercial line most owners do not expect: commercial equity lines are reviewed, not permanent.
The revaluation at review is where the property side shows up. A lease that has rolled to month to month, a tenant who has left, or a soft patch in local commercial values can all lower the figure the lender works from. If the facility letter says the drawn balance must stay under a set share of value, a lower valuation can mean a reduced limit or a request to pay part of the balance down.
The general review routine (what is re-tested, how utilisation is read, what goes in the review pack) is covered in the line of credit annual review insight. The property-specific triggers sit in the card below.
Through the year: holds the limit
- Lease renewed or extended well before expiry
- Rent paid on time and reviewed upward
- Line drawn and repaid, not parked at the limit
- Rates, insurance and strata kept current
- Financials lodged with the lender on time
At review: shrinks the limit
- Lower value on the revaluation
- Vacancy or a tenant on holding over
- Balance at the limit all year
- Rent cover below the covenant
- Late or missing financials
Lending conditions for small business shift with the cycle, and the Reserve Bank's bulletin on small business economic and financial conditions is a useful read on where they currently sit. Covenant and review terms in a facility letter are worth a solicitor's read before you sign.
Equity line, term loan top-up, secured overdraft or second mortgage: which fits?
An equity line fits recurring, uneven needs you expect to repay; a term loan top-up fits a single spend you will repay over years; a secured overdraft fits day to day float on your operating account; and a second mortgage fits a short, specific need when the first lender will not move. The table sets them side by side.
| Facility | How you draw it | How interest runs | Cost (indicative, varies by lender) | Usually fits |
|---|---|---|---|---|
| Commercial equity line | Draw, repay and redraw up to the limit | On the drawn balance, typically interest only | Rate plus a line fee on the full limit | Recurring, uneven needs repaid within the year |
| Term loan top-up | One lump sum added to the existing loan | On the full amount, usually principal and interest | Often the lowest rate of the four; valuation and settlement costs | One defined spend repaid over years |
| Secured overdraft | Your operating account runs below zero | On the overdrawn balance | Rate plus account and limit fees | Day to day trading float |
| Second mortgage | One lump sum from a second lender | On the full amount, often capitalised or interest only | Typically the highest rate and fees of the four | Short, specific needs when the first lender will not lend more |
The overdraft row is only a quick comparison; the secured business overdraft insight covers how those facilities are secured and sized. For the second lender route, the second mortgage guide explains when a second mortgage makes sense and how it sits behind the first.
Who does a commercial equity line suit, and when do lenders decline it?
A commercial equity line suits owners whose property is well let or well used and whose cash needs come and go through the year; lenders tend to decline it where the property, the lease or the servicing cannot carry a limit that might be fully drawn. It is a facility for a business that already trades with some rhythm, not a rescue line.
Who tends to get approved?
- Owner-occupiers with steady trade who want a buffer for stock, tax or seasonal gaps against the premises they run the business from.
- Investors with strong leases who want access to equity for the next purchase or works without refinancing each time.
- Self-employed owners on alternative evidence, with some non-bank lenders offering low doc versions at lower limits and higher pricing, varies by lender.
When do lenders say no?
- The property is vacant, the lease is short, or the tenant looks weak.
- The asset is specialised, such as a single-purpose building that would be hard to resell.
- Servicing works on today's balance but not on the full limit.
- The purpose is vague, or looks like long-term debt dressed up as a revolving line.
- Recent arrears or defaults sit on the business or director credit files.
If a line is not the right shape for your property, the Property Lending Hub sets out the other ways self-employed owners borrow against commercial and residential security.
A commercial property equity line of credit gives you a revolving limit secured by commercial property, with interest only on what is drawn, typically. The limit is set by the property and the lease, then capped by servicing on the full limit. The part owners miss is the review: revaluation at review can lower the figure the lender works from, and an LVR covenant can shrink the limit even when every payment has been made. Keep the lease healthy, keep the line moving, and move long-lived spending into a term loan.
Key takeaway: treat the line as a facility you renew each year, and look after the lease, because the lease is what holds your limit.Frequently Asked Questions
A commercial property equity line of credit is a revolving limit secured by business premises or a commercial investment property, which you can draw, repay and redraw without reapplying. Interest is typically charged only on the drawn balance, and the lender reviews the limit at set intervals. If you are weighing a line against a lump sum, the commercial property equity release insight covers how much equity can come out.
The cost of a commercial equity line of credit is usually the interest on the drawn balance plus a line fee on the full approved limit, with valuation and establishment costs at the start. Pricing varies by lender and is typically higher than a term loan over the same property but lower than unsecured credit. The secured vs unsecured working capital insight compares those costs in more detail.
You can get a business line of credit secured by real estate, and the real estate can be commercial property or, with some lenders, residential property you own. Property security usually supports a larger limit and sharper pricing than an unsecured line, in exchange for a mortgage over the title. The Business Owners Hub sets out both secured and unsecured options.
If the lender reduces your limit at review, any balance above the new limit usually has to be repaid or moved to another facility within a set period stated in the letter. A reduction often follows a lower valuation, a weaker lease or a breached covenant. The guide to a recalled or reduced facility covers the options when this happens.
You can get a commercial equity line on low doc with some non-bank lenders, using evidence such as BAS, business bank statements or an accountant's letter instead of full tax returns. Low doc versions typically come with lower lending ratios, higher pricing and a smaller limit, varies by lender. See how low doc lending works for self-employed borrowers.
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