How a commercial property loan gets approved: the stages, the documents by doc type, the finance clause, and what to fix first after a bank says no.
Property Lending Hub
Commercial Property Loan · Approval · Documents
A commercial property loan is approved in stages, and most files that stall do so because the documents and the property do not tell the same story. This is the approval path, the document file by doc type, and what to fix before you lodge.
Quick Answer
Getting a commercial property loan approved means passing the lender's checks in order, on the borrower, the property, the lease or business income and the numbers, with a document file that matches the doc type, before the finance clause in the contract runs out. The usual order is your identity and credit file, then the valuation, then the rent or trading figures, then serviceability, and finally formal approval with conditions. Our commercial property loans page covers the lending itself.
Also called: commercial property loan approval, commercial mortgage approval, getting a commercial loan approved. They describe the same process; a pre-approval is only the first stage of it.
What does approval actually mean on a commercial property loan?
Approval on a commercial property loan is not one decision: it comes in stages, and only the last stage lets the loan settle. Each stage is a little firmer than the one before, and each comes with fewer conditions attached.
- Indicative or pre-approval. A lender reads a summary of you, the property and the income and says it would likely lend, subject to everything. There is usually no valuation yet, and it does not bind the lender.
- Credit approval. The credit team has assessed the full file and approved the loan on stated terms, typically subject to a valuation and a list of conditions.
- Formal approval. The valuation is in, the conditions are set out in writing and the loan documents are issued for signing.
- Unconditional approval. Every condition has been met and the lender is ready to fund at settlement.
Which stage does a finance clause need? Usually formal approval, because a pre-approval can still be withdrawn once the valuer or the credit team reads the file. That is why you want a finance clause that matches the approval time for your type of property, not the time it takes to get a pre-approval letter. How long that clause should be is a negotiation, and your solicitor should set the wording.
What do lenders test first on a commercial property loan?
Lenders test the borrower first, then the property, then the income that will pay the loan, and only then the numbers that tie the three together. Put simply, what lenders actually look at first is not the property at all but the credit file and the entity behind the purchase.
- The borrower and the credit file. Identity, the company or trust that will own the property, directors and guarantors, credit history and any ATO debt. A problem here usually stops the file before a valuation is ordered.
- The property and its valuation. Location, use, zoning, condition and how easily it would sell. Specialised properties are read more conservatively.
- The lease or the business income. A leased property is read on the rent and the lease; a property you will occupy is read on your business's trading.
- The numbers. Serviceability, interest cover (ICR) and the loan to value ratio decide how much the lender will lend against what it has read.
Each of these tests has its own detail, and our guide to how commercial property loans work walks through them. How much deposit the numbers leave you to find is covered in our commercial property loan deposit insight. This post stays with the order and the path.
What documents do you need for a commercial property loan?
The documents you need depend on the doc type: a full doc file leans on tax returns and financial statements, a low doc file on BAS, bank statements and an accountant's letter, and a lease doc file on the signed lease and rent evidence. Every file also needs identity and entity documents and the contract of sale.
At the time of writing, the government's business.gov.au guide to applying for a business loan lists identification, a business plan, financial reports including cash flow statements, financial forecasts, lease agreements and personal financial information as the paperwork to have ready. A commercial property lender asks for a version of the same list, shaped by how your income will be verified. Our guide on how to apply for a business loan covers the general steps.
| Document | Full doc | Low doc | Lease doc |
|---|---|---|---|
| Tax returns and notices of assessment | Usually the latest two years, business and personal, varies by lender | Often not needed, or the latest lodged year only | Often not needed where the rent carries the loan |
| Financial statements | Profit and loss and balance sheet, usually required | Usually not required | Usually not required |
| BAS | Sometimes asked for to show current trading | Typically the core income evidence, recent quarters | Sometimes, to confirm GST registration |
| Bank statements | Typically a few months of business statements | Typically six to twelve months, varies by lender | Rent receipts into the account, typically several months |
| Accountant's letter | Rarely needed | Often required to confirm income | Rarely needed |
| Signed lease and rent evidence | Needed if the property is leased | Needed if the property is leased | The core document: lease, rent ledger and tenant details |
| Contract of sale | Required on a purchase | Required on a purchase | Required on a purchase |
| ID and entity documents | ID, company or trust deed, ABN details | The same | The same |
The rule that matters most: the documents and the property have to tell the same story. A low doc declaration that does not match the BAS, a lease that names a different tenant entity from the rent ledger, or a contract price that sits well above what the income supports all send the file back for questions. The accountant's letter is often where a low doc story is confirmed or lost. For the lease doc file in detail, see our lease doc commercial property loan insight; for low doc, see how low doc commercial property loans work.
How is an owner occupied commercial loan assessed differently?
An owner occupied commercial loan is assessed on your business's trading, while an investment loan is assessed on the rent, because a different income pays the loan. The property tests stay much the same; the income evidence does not.
An owner occupied file leans on your financials, BAS or an accountant's letter, and on how the business would cope with the new repayments in place of the rent it pays today. An investment file leans on the lease, the tenant and the rent history, with your own income filling any gap. Our guide to passive vs owner operated commercial property sets out the two side by side, and the Property Lending Hub links the rest of the commercial property set.
How long does approval take, and how long should the finance clause be?
Approval typically takes from a few weeks to a couple of months from lodgement to formal approval, and the finance clause should be long enough to reach formal approval, not just a pre-approval letter. Timing varies by lender, and the usual sequence runs like this:
- Pre-assessment. The broker and lender read the scenario and agree it fits policy.
- Lodgement. The full document file goes in.
- Credit assessment. The credit team reads the file and raises questions.
- Valuation. The lender orders a valuation, which is usually the slowest step, especially on specialised or regional property.
- Formal approval and loan documents. Conditions are set and documents issued.
- Conditions met and settlement. Signed documents, insurance and any remaining items go back before funding.
Before anything goes to a lender, sort the file into two piles: what is ready to lodge and what needs fixing first.
Ready to lodge
- Tax returns or BAS lodged and current
- Lease signed, rent flowing into the account
- Entity documents and guarantors confirmed
- Contract price close to likely value
- Finance clause long enough for a valuation
Fix first
- Unlodged returns or overdue BAS
- ATO debt with no payment plan
- Lease about to expire, or unsigned
- Income documents that disagree
- A finance clause shorter than a valuation takes
If you are not sure which pile your file sits in, check eligibility before you sign the contract, not after. Our insight on what sets the property finance settlement clock shows where the time usually goes.
What should you fix first if a bank has already said no?
Fix the specific reason the bank gave, rather than sending the same file to the next lender. In our own files, the decline reason usually falls into one of five groups:
- The valuation came in short. Lower the loan, add security, or ask whether a lender with different valuation policy would read the property differently.
- The lease is too short. Seek a renewal or option exercise before lodging, or look at a lender that reads remaining lease term more flexibly.
- The property is specialised. Expect a lower loan to value ratio and look for a lender with appetite for that property type.
- Serviceability is thin. Lodge the latest year if it is stronger, add the rent or other income properly, or reduce the loan.
- The credit file or a tax debt. Put a payment plan in place and get a written explanation of any defaults before lodging again.
Our insight on how a non-bank reads a commercial file a bank declined covers that read in depth, and the non-bank lender policy matrix shows where policy differs. If the decline was on a refinance, our guide to refinancing a commercial property loan sets out the sequence.
What happens if approval lapses or changes before settlement?
If approval lapses or changes before settlement, the loan cannot fund until it is renewed or replaced, so track the approval's expiry date and conditions against your settlement date from the day it is issued. Approvals typically hold for a set period, often a few months, though the period varies by lender.
Three things commonly change an approval late: the approval expires on a long settlement, a condition cannot be met in time, or a revaluation comes in lower than the first. Ask for an extension well before expiry, as lenders usually want updated documents to grant one. Where the value drops, our guide on a valuation shortfall at settlement sets out the options, and your solicitor can tell you what the contract allows if settlement has to move.
Approval on a commercial property loan is a sequence, not a single yes. Lenders check you, then the property, then the income that pays the loan, then the numbers, and each stage needs documents that agree with each other. Sort the file before you lodge, ask for a finance clause that matches the approval time, fix the specific reason behind any earlier decline, and keep an eye on when the approval expires against your settlement date.
Key takeaway: Match your documents to your doc type and your finance clause to formal approval, not pre-approval, before you sign the contract.Frequently Asked Questions
Getting approved for a commercial loan is harder than a home loan mainly because the lender assesses the property and its income as well as you. Most files that stall have a mismatch between the documents, the valuation and the income rather than a single fatal problem. If a bank has already declined, our insight on how a non-bank reads a bank-declined commercial file explains the next step.
To get a commercial property loan approved you need a deposit or other security, a document file that matches your doc type, a property the valuer supports and income that covers the repayments. How much deposit depends on the property and the lender, and our commercial property loan deposit insight covers it. To test repayments on a loan size, use the commercial property loan calculator.
The documents needed for a commercial property loan are identity and entity documents, the contract of sale and income evidence that depends on your doc type. Full doc files use tax returns and financial statements, low doc files use BAS, bank statements and often an accountant's letter, and lease doc files use the signed lease and rent evidence. Lenders vary in exactly what they ask for.
Commercial property loan approval typically takes from a few weeks to a couple of months from lodgement to formal approval, and timing varies by lender. The valuation is usually the slowest stage, especially for specialised or regional property. A complete file at lodgement is the biggest thing you control.
Getting a commercial property loan as a self-employed borrower with one year of tax returns is often possible, usually through a low doc or lease doc pathway rather than a full doc loan. Lenders weigh your trading history, BAS and bank statements, and some accept an accountant's letter in place of a second return. Our low doc commercial loans insight explains how those files are read.
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