Commercial finance

How are commercial property loans assessed?

The property, lease, business and repayment factors lenders examine in commercial finance.

Short answer

Lenders assess commercial property loans through both the security and the repayment strategy. The lender may review business financials and cash flow, personal or group support, the property's valuation and use, and lease income where the property is tenanted.

Information commonly requested

Requirements depend on whether the borrower will occupy the premises or hold them as an investment. Applications with full documentation may require financial statements, tax returns, BAS, bank statements, liabilities and ownership documents.

Property type, location, condition and alternative uses.
Lease term, tenant quality and rental coverage.
Business profitability, cash flow and existing commitments.
Deposit, guarantees, loan term and exit strategy.

Some loans use lease income differently

Lease-doc products may focus primarily on property rent the lender can verify rather than standard personal or business financials, but eligibility can be narrow. A conventional assessment may be better for owner-occupied premises or when borrowers need broader cash flow.

The security assessment

A commercial valuation may examine market value, comparable sales, market rent, lease terms, condition, zoning and alternative use. For specialised assets, the lender may also consider going-concern value or require a valuation method specific to the industry. The bank normally lends against the value it accepts under policy, which may differ from the contract price or an agent's appraisal. Early property details help identify potential LVR or valuation issues before you lodge the application.

The repayment assessment

For owner-occupied property, the lender may review historical and current business earnings, existing debts, tax obligations and forecasts. It wants to see enough cash flow to meet the proposed loan after normal operating needs. For investment property, net rent and lease coverage can be central. Guarantees or additional security reduce loss risk but do not replace a credible repayment source. A proposal should explain both how cash flow will service the loan and how the borrower will ultimately repay it.

Structure and loan terms

An individual, company or trust may act as borrower, with directors or related parties providing guarantees when the lender requires them. The lender reviews ownership, beneficiaries, related entities and the flow of funds. Commercial loan terms can be shorter than residential terms and may include periodic review, covenants or balloon repayments. Compare the interest rate together with term, amortisation, fees, review conditions and security documents. Those settings can matter more than a small difference in headline rate.

Questions to ask before you proceed

What maximum LVR and valuation method apply to this particular commercial property?
Will servicing rely on business cash flow, lease income or a combination of both?
What loan term, amortisation, review conditions, guarantees and security documents are required?

Key takeaway

Prepare both a clear property case and a credible repayment case; the lender needs to understand each one.

Official guidance: CommBank: What you need for a business loan

This is general information, not personal financial, tax or legal advice. Lending criteria, fees and eligibility vary.

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