More than just home loans
Commercial property covers four main groupings - office, retail, industrial and specialised securities.
Term loans for existing properties in these categories are relatively straight forward. Maximum loan to valuation ratio is lower than for residential property as level of risk is higher and there are lower levels of demand for commercial properties. Loans are available on a full doc, lease doc and low doc basis.
The major banks will generally advance 60- 65% of their valuation over a maximum loan term of 15 years, although on 10 March 2015 the Bank of Melbourne announced that it would fund commercial loans on non specialised properties over a maximum term of 25 years.
In some cases the banks may advance up to 70% of valuation for a limited period. They will usually require the excess to be repaid over a shorter term i.e. 3 – 5 years. The banks will also generally advance additional funds to cover GST on purchases if applicable. Again these funds are short term and need to be repaid from the GST refund.
The second tier banks such as ING and Bendigo offer set and forget style term facilities and Lines of Credit with up to 75% loan to valuation ratio that are particularly attractive for loans up to $5m..
There are also a number of specialist commercial property lenders who can generally offer more generous terms and conditions than the traditional banks for transactions up to $5 million, including loan terms up to 25 years, to a maximum 75% LVR, with no annual reviews and no reporting requirements.
Specialised securities are those where the premises are designed for a specific usage e.g., hotels & service stations that have limited alternative usage. Value is also influenced by the profitability of the operation. Lenders will generally advance only 50% - 60% of value against the freehold of specialised securities.
Most commercial lenders offer loans for SMSFs to finance the acquisition of commercial and residential property. Each application has its peculiar circumstances and recommendations are made on a case by case basis.
Each transaction is unique. By preference AFN limits its advice to transactions where the total borrowing needs for the project are less than $10 million.
Commercial property transactions are usually more complex than residential loans, and each transaction is assessed on its individual merits. The larger and more complex the transaction, generally the longer the time frames from application to settlement.
Allow up to a week for approval in principal. Frequently valuers will require more than a week to complete their inspection and report. Documentation and settlement can take up to 4 weeks in the case of a refinance transaction.
The costs associated with commercial property finance are also considerably higher than the costs of borrowing on the security of residential property. AFN will provide you with an estimate of the both the costs involved and the approximate timeframes prior to making an application on your behalf. Indicative Interest Rates