Beginner's Guide to Commercial Property Finance in Adelaide

Buying commercial property is a different process from buying a home, and the loan is shaped around your business as much as the building.

If you are an Adelaide business owner or investor weighing up a warehouse, office or shop, the key takeaway is this: the loan structure you choose will affect your cash flow every month, so settle it before you fall in love with a property. At Blackfish Finance, we like to understand your wider goals first, then match the finance to them.

How Does Commercial Property Finance Work?

Commercial property finance is a loan secured against a business, industrial, retail or office property, assessed on the strength of both the property and the borrower. Lenders look at the income your business or the tenant generates, not only your personal wages.

A commercial loan is usually a secured commercial loan, which means the property you buy is held as collateral. The main trade-off is that if repayments cannot be met, the lender can sell the property. Some lenders also ask for additional security, so it pays to know what you are putting on the line before you sign.

Commercial interest rates are often priced differently from home loan rates. The rate can depend on the property type, your deposit and the lender, so comparing a few lenders matters. That is where a broker can help.

What Is Commercial LVR and How Much Deposit Will You Need?

Commercial LVR (loan to value ratio) is the loan amount divided by the property's value, and it decides how much deposit you need. Lenders commonly allow a lower LVR for commercial property than for homes, but the limit varies by lender and property type.

Specialised properties, such as those built for one particular use, tend to be viewed more cautiously than a general-purpose warehouse or office. A lower LVR means a bigger deposit, and lenders may price lower-LVR loans more favourably. Your borrowing capacity will also depend on your business income, existing debts and the lender's own policy.

Interest-Only or Principal and Interest: How the Repayments Compare

Interest-only repayments are lower in the short term, but you are not paying down the loan, so the repayments rise once principal and interest begins. Here is an illustrative example using a rate of 6.75% p.a.

Consider a business owner buying a warehouse for their growing logistics company, with a loan amount of $800,000. At 6.75% p.a. over 25 years, principal and interest repayments come to roughly $5,527 a month. On an interest-only basis, the repayment is about $4,500 a month, which frees up around $1,000 a month while the business invests in stock and staff.

The owner chooses five years interest-only. After that, the loan switches to principal and interest over the remaining 20 years. At the same illustrative 6.75%, the repayment becomes roughly $6,082 a month, higher than the original $5,527 because the same balance is now repaid over a shorter time.

The step up is predictable only at the assumed 6.75% rate. A rate change, or the end of a fixed term, could make the repayment higher or lower, so it is wise to build a buffer into your forecasts. The cost of this approach is that the loan balance has not fallen after five years, so more interest is paid overall than if principal had been repaid from day one. Our mortgage repayment calculator lets you test your own numbers, and actual rates will vary by lender and your circumstances.

How Do Lenders Assess a Commercial Property Valuation?

Lenders rely on their own valuation, usually carried out by a valuer on their panel, and they lend against that figure rather than the price you agreed. If the valuation comes in below the contract price, you may need to cover the gap with extra funds.

For an owner-occupied building, the valuer considers factors such as the property's condition, location, zoning, and comparable sales. For an investment property, the lease terms and rent matter too, including how long the tenant has left and how reliable they are. For this reason, it helps to speak with your broker before you make an offer, so you know what a lender is likely to need and can allow time in your contract.

Which Loan Structure Suits Your Commercial Purchase?

The right loan structure depends on what you are buying and why, and one loan rarely suits every purpose. Most purchases use a standard secured commercial loan, but other structures exist for particular situations.

• Commercial bridging finance can cover the gap if you need to buy before selling another asset. The trade-off is a higher cost and a firm deadline to repay.
• A construction loan with progressive drawdown releases funds in stages as building work is completed, so you pay interest only on what you have drawn. The trade-off is closer lender oversight and inspections at each stage.
• A fixed interest rate gives repayment certainty for a set period, while a variable interest rate can move with the market. Fixed loans may limit extra repayments or carry break costs if you exit early, and variable loans may offer features like redraw.

If you plan to buy through a self-managed super fund, the rules are different, so it is worth looking at SMSF loans and getting advice from your accountant and financial adviser first.

You may also be thinking about the finance beyond the building itself. Fit-out, equipment or working capital can sit in a separate facility, such as a business loan, so your property debt does not have to carry everything. Keeping these apart can make each part of your finance easier to review as your business grows.

Speak with us about your plans before you commit to a property. Call one of our team or book an appointment at a time that works for you, and we will work through your goals, compare lenders and build a loan structure that supports where your business is heading.

Frequently Asked Questions