Commercial Loan Features

No matter what your business needs are, there’s a commercial loan for you. Today, banks and lenders have developed commercial loan features to accommodate property developers, retailers, importers, and investors’ financing needs.

On the other hand, the plethora of commercial loan features can confuse business owners about what they actually need.

To make sure you get the most out of your commercial loan, we will break down the common features and at what rates you should be paying them.

Loan term

More often than not, your commercial loan’s term is decided by the type of security you offer to your bank or lender. Here are the most common loan terms for commercial loans:

• 30-year loan term: Mostly offered to applicants with residential properties as their security
• 20- to 25-year term: Given to businesses that offer commercial properties as their security
• 15-year term: The average loan term given for most commercial loans
• Five to 7-year term: Loan terms given for commercial equipment
• Shorter terms: Offered for short-term commercial loans, such as development loans

For more information regarding commercial loan terms, don’t hesitate to speak with our specialist mortgage brokers at 1300 052 055 to know which features best suit your business needs.

Interest-only repayments

With the right lender, you can enjoy interest-only repayments for your commercial loan. However, this is more likely to happen only if you are willing to deposit a large sum and prove a strong cash flow to meet repayments after the interest-only period.

• 15-year interest-only loan term: Offered to applicants who can provide residential properties as security
• Five-year interest-only loan term: Available in a few banks or lenders for commercial property as security
• One- to two-year interest-only loan term: For interest-only commercial loans, this is the most common loan term you can get.

Capitalised interest

Capitalised interest is adding the interest to your commercial loan’s total balance, so it’s not listed as an interest expense in a given period. With this, you don’t need to meet your repayments as long as the loan stays below a percentage of your property’s value.

However, keep in mind that you can only avail of this feature if you can provide a commendable exit strategy, notwithstanding massive equity in your commercial property.

Other business needs

Banks and lenders would usually want to control your facilities whenever you venture into a commercial loan. However, you can secure these facilities by another asset or property, or by a fixed or variable charge over your brand.

• Overdraft facility: Secured by your commercial property, while smaller overdrafts can be partially secured or completely unsecured
• Invoice discounting: Use your outgoing invoices as loan security
• Commercial equipment financing: Utilise your financed assets as commercial loan security

Regardless of your business needs, it’s crucial to ensure your lender that you’ll meet all repayments and that you have a solid business plan. It’s easier to get approved with better rates if banks or lenders think you’re less likely to default or leave.

Terms & Conditions

What do you need in a commercial loan?

Before you shop for an excellent lender, it’s always best to think of what your business actually needs.

Most businesses look for lower commercial loan rates and fees only because they don’t know what else to look out for.

Here are some terms and conditions to help you out as a business owner:

• Lower loan repayments: You can look for longer loan terms or a long interest-only period.
• Smaller loan deposit: You can get this by asking for a higher loan to value ratio or offering an unsecured overdraft facility.
• Seasonal repayments: Again, having an unsecured overdraft will help you enjoy seasonal repayments.
• Lower rate for larger loans: You can request a bank bill facility or other securities to get lower commercial loan rates in higher amounts.
• Additional repayments: If you have a variable rate loan, then there’s a good chance you can also get additional repayments.

Suppose you’re still unsure what your business actually needs. In that case, it’s best to speak with our mortgage experts at 1300 052 055, so we can thoroughly assess all of your commercial loan options.

How much will lenders let me borrow?

The most important factor when choosing a bank or lender is the amount of loan they can offer. It is decided by the loan’s loan-to-value ratio (LVR) or your capacity to meet repayments.

The higher the value of your security, the higher your LVR becomes. But since lenders offer a wide range of amounts for the same security, having a mortgage broker will let you find lenders and banks that offer the most amount.

Moreover, your capability to meet repayments or your interest cover ratio will determine your serviceability. That’s how much you can meet interest payments on your existing debts.

The higher your serviceability, the better you look in the eyes of lenders. Thus, the more chances you can enjoy higher commercial loan amounts with better interest rates.

Annual loan reviews

In commercial property loans, lenders usually leave you alone as long as you meet your repayments.

However, in specialised property loans, large commercial loans, and business loans, banks and lenders will review your loan annually. That is because they need to monitor their security’s value and if you still can make repayments.

But most of the time, reviews only take place, so banks can take advantage of you when you need them most. That includes requiring you to put in another security so you can repay the loan.

With our help, we can help you seek a lender and negotiate a commercial loan without annual reviews so you can rest assured that you are protected.

Personal guarantees

Not all lenders require personal guarantees for commercial loans. While it is inevitable in many loans, you can still negotiate for a non-recourse loan so that banks or lenders cannot seize your other assets or file a case against you.

Additional funding

Regardless of your business growth plans, your lender and bank will be your business partner that will help you secure your funding throughout your business journey.

Hence, it’s best to thoroughly discuss your business plans with your mortgage broker. That way, we can lay out a strong financial strategy that will help you build a relationship with a singular bank/lender or spread out your facilities across multiple suitable lenders.

Interest Rate Types

Variable rates

The most common commercial loan type is a variable rate loan. Here, your interest rate will vary according to the funding costs of your lender or the Reserve Bank of Australia (RBA) cash rate.

Unlike personal residential loans, variable rates differ depending on your loan size. You can get a relatively low interest rate for smaller commercial loans by putting your home or investment property as security. While larger commercial loans require you to have a bank bill loan facility to access lower interest rates.

Fixed rates

Borrowers concerned about the movement of interest rates can opt for a fixed interest rate type for up to five years.

But keep in mind that fixed interest rates are often stricter and implement more limits on additional repayments. It also often comes with a considerable exit fee if you ended up paying the loan early.

Capped rates

If neither of the above two suits your business needs, you can opt for a capped interest rate, which we consider the best of both rates. In this rate type, you can impose a ceiling on your existing interest rate and maintain a variable rate that decreases with other rates (including the RBA cash rate).

More often than not, businesses opt for this if they believe they would end up in financial stress if rates increase beyond a given point. As a result, capped rates are effective against ever-increasing commercial loan interest rates.

Another variant of capped rates is known as an interest rate collar. Aside from an interest rate ceiling, interest rate collars also implement floor rates, reducing your premiums for interest rate ceilings.

Advance interest repayments

If you need to request an additional tax deduction in a given financial year, you can, in fact, opt for advanced interest repayments for up to one year.

Depending on your lender, you can pay your interests in advance in the event when you haven’t proven your ability to meet repayments. Yet, you can provide the requirements next year.