Commercial property includes business property (e.g. office buildings), industrial property, medical centers, hotels, malls, retail stores etc. With many lenders; residential property containing more than a certain number of units (e.g three) qualifies as commercial property for borrowing and tax purposes. Commercial property is intended to be operated at a profit, either from capital gain or rental income.

Generally the LVR (Loan to Valuation Ratio) is capped at 80% for these loans provided the structure of the security. A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial property as described above and not residential property.
In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business, or limited company, so assessment of the creditworthiness of the business can be more complicated than is the case with residential mortgages.

Some commercial mortgages are nonrecourse, that is, that in the event of default in repayment, the creditor can only seize the collateral, but has no further claim against the borrower for any remaining deficiency. One popular category that has recently emerged is Self Managed Super Funds or SMSF.

Frequently, the mortgage is supplemented by a general obligation of the borrower or a personal guarantee from the owner(s), which makes the debt payable in full even if foreclosure on the mortgaged collateral does not satisfy the outstanding balance.

Lenders' criteria
Most banks and private lenders offer commercial mortgages, but you must satisfy the lenders' criteria for qualification. The primary criterion is the debt service ratio or serviceability test. Some lenders may accept applications where there is an adverse credit history, but most require a positive personal credit rating and clear evidence that your business is creditworthy. Most will apply a loan-to-value (LVR) ratio and will expect you to invest a proportion of your own money into the purchase (Generally 20%-40%).

The lender's decision will also depend on your current business circumstances - a commercial lender will expect your business to be stable and profitable. They may ask to see your current Tax Returns, Business plan and long-term financial projections, to assure themselves that your business has, and will continue to have, the ability to make repayments on the loan. Some lenders impose restrictions on the type of security accepted generally classed as specialised security such as Brothels, Taxi Plates, Child cares, Student accommodation etc. This is a complex area and it's essential that you seek specialist advice from your Business broker or your solicitor.

Interest Rates
Interest rates for commercial mortgages are usually higher than those for residential mortgages. Loan terms generally range from 5 -15 years; however longer loan terms are available. Interest only repayments are preferred compared to Principal and Interest being fully tax deductible.

Fees and Charges
Unlike Residential mortgages; brokerage may be charged on Commercial mortgages being more complicated, larger in size and longer towards settlement.
Moreover; Valuation and Loan Documentation fess are also paid by the borrower unlike residential mortgages. To know more; simply fill out the enquiry form or call us today.