Simple hacks to structure commercial loans

A commercial loan structure determines how much you pay, when you pay it, and how much flexibility you retain as your business changes.

For Richmond businesses, where property values are rising and commercial opportunities range from converted warehouses along Swan Street to strata office units near the MCG, the way your loan is structured can affect your cash flow, tax position, and ability to reinvest. The right structure adapts to your business cycle rather than forcing your business to adapt to fixed repayment schedules.

Why Commercial Loan Structure Matters More Than Rate

Structure controls your monthly obligations, your ability to access equity, and what happens when revenue fluctuates. A variable rate loan with interest-only repayments and a redraw facility might cost more in interest over time than a fixed rate principal-and-interest loan, but it can preserve working capital during slow periods and allow you to deploy surplus cash when opportunities emerge.

Consider a buyer acquiring a retail property on Bridge Road. With principal-and-interest repayments on a $1.2 million loan, monthly repayments might sit around $8,500. Switching to interest-only for the first three years drops that to around $5,000 per month at current variable rates, freeing up $3,500 monthly to fund fit-out work, stock, or marketing. The trade-off is a higher loan balance at the end of that period, but for a business prioritising growth over debt reduction in the early years, that structure makes sense.

For businesses planning to hold property long-term and build equity steadily, a principal-and-interest structure with offset facilities or redraw can work well. For those expecting revenue volatility or planning further expansion, interest-only terms combined with a revolving line of credit offers more room to move.

Interest-Only Terms and When They Work

Interest-only repayments reduce your monthly commitment by deferring principal repayments for an agreed period, typically one to five years. You're only required to pay the interest charged each month, which lowers your cash outflow and keeps more capital available for operations or reinvestment.

This structure suits businesses in growth phase, those managing seasonal cash flow, or investors holding commercial property primarily for capital gain rather than debt reduction. A Richmond-based logistics operator purchasing an industrial property in Cremorne might use interest-only terms to preserve cash while building client contracts, then switch to principal-and-interest once revenue stabilises.

Interest-only terms don't reduce your loan balance, so you'll need a clear plan for either refinancing, selling, or transitioning to principal repayments when the interest-only period ends. Lenders typically require evidence that your business can service principal-and-interest repayments at the end of the interest-only term, even if you're not making those repayments yet.

Split Loan Structures for Rate Protection and Flexibility

A split loan divides your borrowing into two or more portions, each with different terms. One portion might be fixed for three years at a set rate, while the other remains variable with full redraw access.

This approach lets you lock in certainty for part of your repayment while retaining flexibility on the rest. If rates rise, your fixed portion protects you. If rates fall or you want to make extra repayments without penalty, your variable portion allows it.

In our experience, businesses using split structures often allocate around 50 to 70 per cent to a fixed rate and leave the remainder variable. A buyer purchasing a commercial strata unit near Richmond Station might fix $600,000 of an $850,000 loan to lock in repayments, leaving $250,000 variable so they can make lump sum repayments from business profits without incurring break costs.

The structure also works well when you're uncertain about future cash flow. Fixing part of the loan provides a baseline repayment you can budget around, while the variable portion absorbs surplus cash when available.

Revolving Credit Facilities for Working Capital

A revolving line of credit operates like an overdraft secured against your commercial property. You're approved for a maximum limit, you draw what you need, and you're charged interest only on the amount drawn. As you repay, the available credit replenishes.

This structure suits businesses that need flexible access to capital without applying for new funding each time. A hospitality operator in Richmond might use a revolving facility to manage stock purchases, cover payroll during quiet periods, or fund short-term renovations, drawing and repaying as cash flow allows.

Revolving facilities typically sit alongside a primary loan. You might have a $1 million term loan for the property purchase and a $200,000 revolving facility for working capital. The term loan is repaid over 15 to 25 years, while the revolving facility remains open-ended as long as you meet servicing requirements.

Interest rates on revolving facilities are usually higher than standard term loans, reflecting the flexibility and risk profile. Lenders also review these facilities annually, so your access isn't guaranteed indefinitely. If your business circumstances change or property values decline, the lender may reduce or withdraw the facility.

How Loan-to-Value Ratios Affect Structure Options

Your loan-to-value ratio, or LVR, is the percentage of the property's value you're borrowing. A lower LVR typically unlocks more structural flexibility, lower interest rates, and access to features like redraw or offset facilities.

Most lenders will finance commercial property up to 70 or 80 per cent LVR, depending on property type and your financial position. At 70 per cent LVR or below, you'll generally have access to the widest range of loan structures and the most competitive pricing. Above 70 per cent, your options narrow, and rates increase.

For buyers entering the Richmond commercial market, where office and retail values have been rising, a lower LVR can mean the difference between securing a flexible loan structure and being locked into rigid terms. If you're borrowing at 65 per cent LVR to acquire an office building near Church Street, you'll likely have access to interest-only terms, split rate options, and redraw facilities. At 80 per cent LVR, some of those features may be unavailable or come with higher rates.

LVR also affects your ability to refinance or draw additional equity later. Keeping your LVR below 70 per cent leaves room to access equity as your property appreciates, without needing to inject more capital or undergo full revaluation and serviceability reassessment.

Structuring for Multiple Properties or Business Expansion

If you're planning to acquire more than one commercial property or expand your business into new premises, your initial loan structure should account for that. Lenders assess your total debt position when evaluating new applications, so how your existing loans are structured affects your future borrowing capacity.

Using interest-only terms on your first commercial property loan can preserve serviceability for a second purchase. If you're servicing principal-and-interest repayments on a $1.5 million loan, your committed monthly outgoings are higher, which reduces how much a lender will approve for your next property. Switching to interest-only reduces that commitment and frees up serviceability.

Similarly, structuring your loan with separate accounts for land and buildings, or separating investment property debt from owner-occupied premises, can improve your tax position and make future refinancing more straightforward. A Richmond-based professional services firm purchasing both an office for their own use and a retail property as an investment might structure those as separate loan accounts, even with the same lender, to keep the interest deductions clear and allow for different repayment strategies.

Cross-collateralisation is another structural consideration. Some lenders will secure multiple properties under a single loan facility, which can simplify administration and sometimes improve pricing. The downside is that selling one property becomes more complex, as you'll need the lender's consent to release that security. Structuring each property as a standalone loan, even if held with the same lender, gives you more flexibility to sell or refinance individual assets without disrupting the rest of your portfolio.

Choosing Between Variable and Fixed Interest Rates

Variable rates move with the market, which means your repayments can increase or decrease depending on rate changes. Fixed rates lock in your interest rate for a set term, typically one to five years, providing repayment certainty but less flexibility.

A variable rate structure suits businesses that want the ability to make extra repayments, access redraw facilities, or pay out the loan early without penalty. You'll benefit if rates fall, but you're exposed if they rise. For Richmond businesses operating in sectors with stable revenue and strong cash reserves, a variable rate with offset or redraw can offer both flexibility and the ability to reduce interest costs over time.

Fixed rates suit businesses that need certainty, particularly if margins are tight or cash flow is less predictable. Locking in a fixed rate protects you from rate increases, but if rates fall or you want to refinance or sell before the fixed term ends, you may face break costs. Fixed rate loans also typically don't allow extra repayments beyond a small annual threshold, and redraw facilities are less common.

Some buyers use a combination, fixing part of the loan for certainty and leaving part variable for flexibility. This approach balances protection from rate rises with the ability to make lump sum repayments or refinance part of the debt without penalty.

Structuring Around Tax and Cash Flow Considerations

The way your loan is structured affects both your tax position and your monthly cash flow. Interest on commercial property loans is generally tax-deductible when the property is used for business or investment purposes, so your after-tax cost of borrowing is lower than the headline rate.

If your business operates on a cash accounting basis or has uneven revenue, structuring your loan with interest-only repayments and a revolving credit facility can smooth out cash flow and give you room to manage tax obligations without drawing on external funding. For businesses with strong, consistent revenue, principal-and-interest repayments with offset facilities can reduce interest costs while keeping surplus cash accessible.

Offset accounts work by linking a transaction account to your loan. The balance in the offset account reduces the amount of interest charged, without actually paying down the loan. If you have a $1 million loan and $150,000 sitting in an offset account, you're only charged interest on $850,000. Your loan balance stays at $1 million, but your interest cost is lower, and you retain full access to the $150,000.

This structure suits businesses that accumulate cash reserves or need to hold funds for tax, superannuation, or planned capital expenditure. It's also useful for buyers who want to reduce interest costs without committing funds permanently to loan repayments.

For businesses planning to reinvest profits into equipment, fit-out, or further property acquisition, keeping debt separate and structuring loans with clear purpose can simplify tax reporting and improve your ability to claim deductions. Mixing investment debt with owner-occupied debt or business operating loans can complicate your tax position and limit your flexibility when refinancing.

When to Review and Restructure Your Commercial Loan

Loan structures should change as your business changes. A structure that worked at acquisition may not suit you three years later when your revenue has doubled, your property has appreciated, or your business goals have shifted.

Regular loan health checks allow you to assess whether your current structure still serves your needs or whether refinancing to a different lender or restructuring with your existing lender would deliver lower costs, improved flexibility, or access to equity.

Common triggers for restructuring include the end of a fixed rate period, the expiry of an interest-only term, a significant increase in property value, changes to your business structure, or plans to acquire additional property. If your Richmond property has increased in value and your LVR has dropped, you may be able to refinance to access equity, reduce your rate, or switch to a more flexible loan product.

Restructuring isn't always about saving on rate. It can be about matching your loan terms to your business cycle, improving cash flow, or positioning your balance sheet for growth. Working with a commercial finance and mortgage broker who understands both property and business lending helps you identify when restructuring makes sense and which lenders offer the structure you need.

If your business is approaching a new phase, whether that's expansion, consolidation, or sale, your loan structure should reflect that. Locking in long fixed terms or committing to aggressive principal repayments might limit your options if your plans change. Structuring with flexibility in mind gives you room to adapt without triggering penalties or needing to refinance under pressure.

Whether you're acquiring your first commercial property in Richmond or restructuring an existing loan to support your next move, call one of our team or book an appointment at a time that works for you.

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