Freehold or Leasehold: Which Needs a Commercial Property Loan?
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Accommodation Finance
Commercial Property Loan · Freehold · Going Concern
Freehold or Leasehold: Which Needs a Commercial Property Loan?
It is easy to assume any accommodation purchase needs a commercial property loan. It does not. Whether the loan enters the deal at all comes down to one thing: are you buying the freehold, or taking on a leasehold going concern?
Quick Answer
Only buying the freehold brings a commercial property loan into an accommodation deal, because the loan needs real property as security. A leasehold going concern has no bricks to mortgage, so it is funded as a business purchase against the lease and the trade.
Does every accommodation purchase need a commercial property loan?
No, only the ones where you buy the freehold do. The common misconception is that financing a motel, pub or park automatically means a commercial property loan, when the truth is that a commercial property loan only enters when you own the bricks.
Buy the freehold and the real property becomes the security a lender writes the loan against. Take on a leasehold going concern and there is no land title to mortgage, so the deal is funded as a business purchase instead. This single fork, freehold or leasehold, decides which finance you actually need before you even talk pricing.
When a commercial property loan actually enters the deal
A commercial property loan enters the moment you are buying the freehold of the going concern. You own the land and building as well as the business, so there is a title to secure against, and that is what the loan is written over.
To a credit team, the figure that matters is the going concern valuation, not vacant possession. The loan is sized off going-concern valuation versus vacant possession, because a trading motel or pub is worth what it earns, not what an empty shell would fetch. Our explainer on how a going concern valuation is set walks through that earnings read, and the deeper mechanics sit in our note on a commercial property loan against a going concern.
As a working rule, a freehold going concern is financed indicatively around 60 to 70 percent of the going-concern value, indicative and varies by lender. The bricks carry the main security, and where the gearing needs help, the bricks carry supporting security from a residential property or another asset so no single security is pushed too hard.
Where a commercial property loan works
- Freehold held together with the trading business
- Two to three years of tidy, lodged financials
- Rooms or gaming income that is verifiable
- Supporting security available to balance the gearing
- Clean tenure with no title or zoning surprises
Where it stalls
- A short leasehold with no land to mortgage
- A recent ownership change with a thin trading record
- Cash-heavy income that is hard to substantiate
- One security geared hard with no backup asset
- A price sitting ahead of what the trade supports
What funds a leasehold going concern instead
A leasehold going concern is funded as a business purchase, not a property loan, because there are no bricks to mortgage. You are buying the trade and the right to occupy under a lease, so a lender writes against the lease term and the earnings rather than a land title.
That changes the appetite. The remaining lease term frames the structure, the landlord's consent usually has to be in place, and a leasehold typically gears lower than a freehold, varies by lender. Supporting security, often residential property, does more of the heavy lifting, and single securities geared hard tend to move from major banks to non-bank lenders or Tier-2 specialists. For the accommodation lane as a whole, the accommodation finance hub maps where each structure fits.
What the lender weighs, and the FY27 timing
What a lender weighs first is whether the earnings will hold, not the postcode. Tenure tells the credit team which product they are even looking at, then the quality of the trade decides the terms. Where this commonly lands is that a freehold with a documented trade reads as the income-producing asset a commercial property loan is built for, while a thin or short leasehold reads as a business risk to be structured around.
Timing matters into FY27. The 2026-27 Federal Budget's small-business measures, including the instant asset write-off set to become permanent and loss carry-back returning for companies, are announced and not yet law; they are set out in the Treasury backing small business factsheet, and they shape how a fitout or refurbishment on a freehold is planned rather than rushed. The cleaner the financials and the clearer the tenure before a lender sees the file, the better any of this reads. Our commercial property loan rates guide covers how the pricing then gets set, and the broader going concern explainer covers the concept end to end.
The deciding question on an accommodation deal is not the price, it is the tenure. Buy the freehold and a commercial property loan enters, secured by the bricks and sized off the going-concern valuation. Take a leasehold and there is nothing to mortgage, so the purchase is funded as a business deal against the lease and the trade. Get the tenure and the financials clear, and the right product almost picks itself.
Key takeaway: a commercial property loan only belongs in the deal when you own the bricks, so settle the tenure question first.Frequently Asked Questions
Buying a leasehold motel or pub does not need a commercial property loan, because there is no land title to mortgage. A leasehold going concern is funded as a business purchase against the lease term and the trade, often with supporting security. A commercial property loan only enters when you buy the freehold.
The sale of a going concern can be GST-free where both parties meet the conditions, such as the buyer being registered for GST and the seller supplying everything needed for the business to keep operating. It is a tax question that turns on the contract and your circumstances, so confirm it with your accountant. The going concern itself is the property and the trading business read together.
A going concern is valued by reading the property and the trading business as one income-producing asset, working off adjusted net profit rather than bricks and mortar alone. An instructed valuer normalises the earnings and weighs the tenure and income mix. Our guide on how a going concern valuation is set walks through the earnings read in detail.
Using your home as supporting security on a commercial property loan is common, because it lifts the effective funding without pushing any single asset past a comfortable level. The bricks of the freehold carry the main security and the residential property backs it. Whether it suits depends on the structure, so it is worth mapping with a broker before you commit.
Borrowing to buy an accommodation freehold is sized off the going concern valuation, typically around 60 to 70 percent for freehold motels and parks, indicative and varies by lender. A strong, documented trade sits at the upper end while thinner records sit lower, and supporting security can lift the effective funding. Our commercial property loan rates guide covers how these structures are priced.
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