Understanding the basics of Commercial Property Acquisition

Buying commercial property means understanding how lenders assess the asset, the business using it, and the structure that connects the two.

Most lenders want to see at least 30% deposit or equity contribution for a standard commercial property loan. That means a loan-to-value ratio of 70% at most, though some lenders will go to 80% if the property is in a strong location, fully leased, and the borrower has a solid servicing position. A medical centre on Manningham Road leased to three practitioners on five-year terms will be viewed differently to a vacant warehouse in an industrial pocket with limited comparable sales. The LVR you're offered reflects how the lender sees both the property and your ability to service the debt from day one.

Templestowe sits within the City of Manningham, where commercial property stock includes medical suites, retail shopfronts along Anderson Creek Road and Macedon Road, and small office or warehouse spaces closer to the Bulleen industrial precinct. The area attracts owner-occupier purchases from established service businesses, as well as investors drawn to tenanted medical and retail assets with longer lease terms. Lenders familiar with the eastern corridor understand the demand drivers, but they still want a valuation that reflects recent arms-length sales and a tenancy profile that supports the purchase price.

How Lenders Value Commercial Property for Loan Purposes

A commercial property valuation is ordered by the lender and prepared by an independent valuer.

The valuer assesses three things: comparable sales in the area, the income the property generates if tenanted, and the cost to replace the improvement if it were destroyed. For an income-producing asset, the capitalisation rate applied to net rental income becomes the primary valuation method. A medical suite in Templestowe leased at $80,000 per annum net might be valued by applying a capitalisation rate of 5.5% to 6.5%, depending on lease length, tenant strength, and location quality. That same suite, if vacant, would be valued on comparable sales alone, and the result is almost always lower.

Consider a buyer looking at a strata title office in a small complex near the Templestowe Village shopping precinct. The property is leased to an accounting practice on a three-year term with two years remaining. The passing rent is $55,000 per annum net, and comparable strata offices in the area have sold on capitalisation rates between 6% and 6.5%. The valuer applies a 6.2% cap rate and arrives at a valuation of around $887,000. The buyer has agreed to pay $920,000. The lender will use the lower figure, which means the loan amount is calculated on $887,000, not the contract price. At 70% LVR, the maximum loan is $620,900. The buyer needs to fund the difference between that and the $920,000 purchase price, plus all settlement costs and any stamp duty, from their own resources.

What Lenders Assess Beyond the Property Itself

Commercial property finance is not just secured against bricks and mortar.

Lenders want to see that the loan will be serviced from reliable income, whether that's business trading income if you're an owner-occupier, or rental income if you're an investor. For owner-occupiers, the lender will ask for recent business financials, tax returns, and BAS statements. They're assessing whether your business generates sufficient net profit to cover the loan repayments, your living expenses, and any other debt commitments. Most lenders apply a debt service coverage ratio of at least 1.2 to 1.3, meaning your net operating income should be 20% to 30% higher than the total debt servicing requirement.

If you're buying as an investment and the property is fully leased, rental income can be used to service the loan. The lender will typically assess 80% of the gross rent to allow for vacancy, management, and outgoings, even if the lease requires the tenant to pay all outgoings. A retail shop leased at $60,000 per annum gross would be assessed at around $48,000 per annum for servicing purposes. If that doesn't cover the loan repayments at current variable rates, the lender will ask you to demonstrate additional income from other sources to make up the shortfall.

Guarantees are common in commercial lending. If you're purchasing through a company or trust structure, the lender will usually require personal guarantees from the directors or beneficiaries. This means your personal assets, including your home, can be called upon if the loan defaults. Some lenders will also take a second mortgage over your residential property as additional security, particularly if the commercial property LVR is above 70% or the serviceability position is tight.

Fixed vs Variable Interest Rates and Loan Structure

Commercial property loans are typically offered with a variable interest rate, a fixed interest rate, or a split between the two.

Variable rates give you flexibility to make extra repayments without penalty and to redraw funds if the loan facility allows it. Fixed rates lock in your repayments for a set period, usually one to five years, which helps with budgeting and protects you if rates rise. The trade-off is that you'll pay break costs if you want to refinance, sell the property, or pay down the loan early during the fixed period. Those break costs can be substantial if wholesale rates have fallen since you fixed.

Many buyers in Templestowe who are purchasing a medical or professional suite as an owner-occupier choose a variable rate or a short fixed term of two to three years. This reflects the likelihood that the business may grow, relocate, or refinance within that window. Investment buyers with long lease terms and stable tenants are more likely to fix for longer periods, particularly if they want certainty over cash flow for tax planning or portfolio management.

Loan terms for commercial property finance range from five to 30 years, though 15 to 20 years is common for investment purchases. Owner-occupiers sometimes choose shorter terms to reduce total interest costs, particularly if the business cash flow supports higher repayments. Interest-only periods of one to five years are available and often used by investors to improve cash flow in the early years of ownership, though you'll need to demonstrate that the loan can be serviced on a principal-and-interest basis once that period ends.

Strata Title Commercial Property and What It Means for Lending

Strata title commercial properties are individually owned units within a larger complex, with shared common areas managed by an owners' corporation.

Lenders treat strata title commercial assets the same way they treat residential strata properties when it comes to LVR and valuation, but they pay closer attention to the owners' corporation financials and the sinking fund balance. A complex with deferred maintenance, rising levies, or a history of special levies will raise concerns. The lender will order a strata report as part of their assessment, and if that report shows structural issues, fire safety non-compliance, or insufficient funds in the sinking fund, they may reduce the LVR or decline the application altogether.

Strata title offices, medical suites, and retail shops are common in Templestowe and surrounding areas like Doncaster and Bulleen. They're often more affordable than freehold commercial buildings and appeal to buyers who want ownership without the responsibility of managing an entire building. The trade-off is less control over common property and exposure to decisions made by the owners' corporation. If you're purchasing a strata title property as an investment, make sure the lease is registered and that the tenant's fitout hasn't breached any owners' corporation by-laws. Lenders will check both.

Pre-Settlement Finance and Timing Your Purchase

Some commercial property transactions involve pre-settlement finance or a deposit bond, particularly when the buyer needs to secure the property before their existing asset has sold or their business cash flow is available.

Pre-settlement finance is a short-term loan that covers the deposit and sometimes the full purchase price until the main commercial loan settles. It's typically used when a buyer has exchanged contracts on a commercial property but won't have access to the deposit funds until another transaction completes. Interest rates on pre-settlement finance are higher than standard commercial loan rates, and the term is usually 30 to 90 days. It's not suitable for every situation, but it allows you to proceed with a purchase when the timing doesn't align with your cash flow.

Bridging loans work in a similar way but are secured against existing property you already own. If you're buying a commercial property in Templestowe and selling an investment property elsewhere, a bridging loan can be structured to cover the new purchase while your current asset is being sold. The lender takes security over both properties, and the loan is discharged once the sale completes. This structure is more common in residential transactions, but it's available for commercial purchases when the numbers support it and the borrower has sufficient equity.

What Happens After You Exchange Contracts

Once contracts are exchanged, the lender begins formal assessment.

They'll order the valuation, request updated financials from you or your business, and review the contract of sale and any lease documents if the property is tenanted. The valuer will inspect the property, and the lender's credit team will complete their serviceability assessment. If everything aligns, formal approval is issued, and the lender prepares loan documents. You'll also need to arrange building insurance from the date of settlement, as most commercial loan contracts require continuous cover for the life of the loan.

If the valuation comes in below the purchase price, you'll need to make up the difference or renegotiate the contract. Some sellers will adjust the price if the shortfall is small, but if the gap is significant, you may need to bring in additional equity or consider a different lender. Not all lenders use the same valuation panel, and a second valuation can sometimes return a higher figure, though there's no guarantee. Working with a commercial finance broker means you can position the application with the lender most likely to return a supportable valuation before contracts are signed, which reduces the risk of a last-minute shortfall.

Settlement typically occurs 30 to 90 days after exchange, depending on what's negotiated in the contract. You'll need to arrange for all funds to be available in your solicitor's trust account on settlement day, including the balance of the purchase price, stamp duty, legal fees, and any adjustments for rates or outgoings. The loan funds are drawn down on settlement, and ownership transfers to you. If the property is tenanted, the lease transfers at the same time, and you become the landlord from that point forward.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, review the property you're considering, and structure the finance so it aligns with both the asset and your broader business goals.

Frequently Asked Questions