Understanding Commercial Loan Structuring
If you're self-employed and looking to purchase commercial property, expand your business premises, or invest in commercial real estate, getting the loan structure right from the start can save you thousands of dollars and provide the flexibility you need as your business evolves.
Commercial loan structuring is about more than just securing a loan amount. It's about tailoring the finance to match your business cash flow, your investment strategy, and your long-term goals. Unlike residential mortgages, commercial loans offer significantly more flexibility in how they're set up, which means you have options that can work specifically for your situation.
Let's walk through what you need to know about structuring commercial finance that actually works for your business.
The Core Components of Commercial Loan Structures
When you're working with a commercial Finance & Mortgage Broker like Archbold Financial, understanding the building blocks of your loan structure helps you make informed decisions. Here are the key elements:
Secured vs Unsecured Commercial Loans
Most commercial property loans are secured against the property you're purchasing or other business assets. A secured Commercial Loan typically offers lower commercial interest rates because the lender has collateral. Unsecured Commercial Loans exist but usually come with higher rates and lower loan amounts because they carry more risk for lenders.
Interest Rate Options
You'll need to choose between:
- Variable interest rate: Your repayments fluctuate with market changes, but you often get features like redraw facilities and flexible repayment options
- Fixed interest rate: Locked in for a set period (typically 1-5 years), giving you certainty on your repayments
- Split loans: A combination of both, which many self-employed borrowers prefer for balancing certainty with flexibility
Commercial LVR Considerations
The Loan to Value Ratio (LVR) for commercial property finance typically sits between 60-80%, depending on the property type and your financial position. A lower LVR often means better interest rates, while a commercial property valuation will determine the maximum loan amount available.
Popular Commercial Loan Structures for Self-Employed Victorians
Depending on what you're trying to achieve, different loan structures suit different purposes:
1. Progressive Drawdown Facilities
If you're looking at a commercial construction loan or commercial development finance, a progressive drawdown structure means you only draw down funds as construction milestones are met. You're only paying interest on the amount drawn, not the full loan amount from day one.
2. Revolving Line of Credit
This structure works like a giant overdraft facility secured against your commercial property. It's particularly useful for businesses that need ongoing access to funds for buying new equipment, upgrading existing equipment, or managing cash flow gaps. You can draw down and repay as needed, paying interest only on what you're using.
3. Interest-Only Periods
Many commercial property investors structure their loans with interest-only repayments for a set period, improving cash flow while the property appreciates or rental income establishes itself.
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Book a chat with a Finance & Mortgage Broker at Archbold Financial today.
4. Mezzanine Financing
For larger commercial property investment projects, mezzanine financing sits between senior debt and equity. It's subordinate to your primary loan but allows you to access additional funds when you've maxed out conventional lending.
Structuring for Different Commercial Property Types
The type of property you're purchasing influences how you should structure your finance:
Office Building Loan and Retail Property Finance
These properties often have established tenancies, making them appealing to lenders. You can typically access higher LVRs and structure your loan with terms matching your lease agreements.
Warehouse Financing and Industrial Property Loan
Industrial properties might require specialist valuations and different loan structures, particularly if you're buying an industrial property for your own business use versus investment.
Land Acquisition
When you buy commercial land, especially vacant land, lenders view this as higher risk. Your loan structure might include shorter terms and higher deposits, with plans to refinance once development begins.
Strata Title Commercial
Buying strata title commercial property (like a unit in a commercial complex) can be structured similarly to freehold commercial property, though some lenders have specific policies around strata commercial.
Flexible Loan Terms and Repayment Structures
One advantage of commercial finance is the negotiable terms. Unlike residential lending, where products are more standardised, commercial lenders look at each application individually. This means you can often negotiate:
- Loan terms between 1-30 years
- Flexible repayment options that align with your business income cycles
- Seasonal repayment structures if your business has predictable busy and quiet periods
- Principal and interest or interest-only options
Refinancing and Restructuring Commercial Loans
Your business circumstances change, and your loan structure should evolve too. Commercial refinance might make sense when:
- Your business has grown and you need to access equity
- You're expanding business operations
- Interest rates have shifted significantly
- You want to consolidate multiple facilities
- You're transitioning from construction to investment phase
Specialist Finance Options Worth Considering
Depending on your situation, these structures might fit your needs:
Commercial Bridging Finance
When you need to move quickly on buying commercial property but haven't sold your existing asset, commercial bridging finance provides short-term funding (typically 6-12 months) until your permanent financing is in place.
Pre-Settlement Finance
Similar to bridging but specifically for covering the gap between contract exchange and settlement when you're buying commercial real estate.
Business Property Finance
If you're purchasing property specifically for your business operations, this can be structured as part of your overall business lending, potentially including equipment finance for fit-outs and machinery.
Access Commercial Loan Options from Banks and Lenders Across Australia
Working with a commercial Finance & Mortgage Broker means you're not limited to one lender's products. At Archbold Financial, we access Commercial Loan options from banks and lenders across Australia, comparing:
- Interest rates and comparison rates
- Loan features and flexibility
- Approval criteria and documentation requirements
- Settlement timeframes
- Ongoing service and relationship management
This is particularly valuable for self-employed borrowers, as different lenders assess self-employed income differently.
Getting Your Commercial Loan Structure Right
The structure you choose today impacts your financial flexibility for years to come. Consider:
- Your current cash flow and how repayments fit
- Future business plans and growth trajectory
- Tax implications of different structures (speak with your accountant)
- Exit strategies and potential refinancing needs
- Risk tolerance around variable versus fixed rates
As a self-employed Victorian, you've got unique needs that generic loan products don't always address. The right loan structure provides the capital you need while maintaining the flexibility to adapt as your business grows.
Whether you're looking at buying commercial property for the first time, seeking warehouse financing for your operations, or structuring commercial development finance for a major project, having an experienced broker who understands both commercial property investment and self-employed lending makes all the difference.
Call one of our team or book an appointment at a time that works for you to discuss how we can structure commercial finance that aligns with your business goals and sets you up for long-term success.
