Commercial property finance in Australia is structurally different from residential lending. There is no government-backed mortgage insurance, no first-home subsidy regime, and no standardised borrower assessment template across lenders. Loan-to-value ratios are lower, interest cover ratios are tested explicitly, and the lender's view of the tenant covenant materially affects what can be borrowed against an asset.
This article covers how commercial property loans work in Australia, the principal lender tiers and the briefs each one fits, the assessment framework banks use, and the buyer-side questions that often go unasked but should not.
Commercial finance is asset-led and tenant-led, not borrower-led. A weak borrower with a strong asset and tenant covenant will often be funded; a strong borrower with a weak asset and short-WALE income will often be declined. The asset is the credit.
How Commercial Lending Differs from Residential
No mortgage insurance
Lender's Mortgage Insurance (LMI) does not exist in commercial. Maximum LVRs without LMI are set by the lender directly and typically range from 50% to 75% depending on asset class and covenant.
Interest cover ratio (ICR)
Commercial lenders test the net rental income against the loan's interest cost. Typical minimum ICR is 1.5x to 2.0x, meaning rent must cover interest by 50% to 100% over and above the actual interest cost. ICR sits alongside the LVR as a binding constraint.
Loan term and amortisation
Commercial loans are typically 3 to 5 year fixed-term facilities with 15 to 25 year amortisation, or principal-and-interest with shorter terms. Residential-style 30-year terms are uncommon.
Repricing risk
At end of term, the loan is repriced based on the lender's current rates and assessment criteria. A loan that was comfortable at origination can be marginal at refinance if rates have moved or the lender's criteria have tightened.
1 Lender Tiers
Major banks (ANZ, CBA, NAB, Westpac)
Lowest interest rates, strictest credit criteria. Major bank commercial lending sits within their business banking arm and is generally available for assets with strong tenant covenant, established WALE, and clear use. LVRs typically up to 65% for investment commercial, up to 75% for owner-occupied commercial.
Tier 2 banks (Bank of Queensland, Bendigo and Adelaide, Suncorp, Macquarie Business Banking)
Competitive on owner-occupied and investment commercial within their preferred segments. Macquarie has built a deep position in commercial property lending including medical and childcare.
Non-bank lenders (Liberty, Pepper Money, La Trobe Financial, Resimac, Thinktank)
Higher rates, more flexible criteria, faster approval. Useful where the borrower or asset does not fit major bank criteria (low-doc, short-WALE, vacant possession purchase, complex structure).
Private credit and family office lenders
Highest rates, fastest turnarounds, deal-by-deal terms. Used for short-dated bridging, mezzanine layers, or asset acquisitions outside the bank credit appetite.
2 Loan Types
Full-doc commercial loan
Standard commercial lending. Borrower provides full financials (entity and personal), tax returns, asset and liability statement, and the asset's rent roll and lease documentation. Lender does full credit assessment.
Lease-doc commercial loan
Loan assessed primarily against the asset's lease income and tenant covenant, with reduced borrower financial documentation. Useful for SMSF acquisitions and for borrowers whose personal income is structured in ways that do not present cleanly to a bank.
SMSF commercial loan (LRBA)
Loans to SMSFs for single-acquirable-asset commercial purchases under Limited Recourse Borrowing Arrangements. Specific structuring requirements; not all lenders write SMSF commercial loans, and the ones that do typically cap LVR at 65% to 70%.
Construction and development finance
Separate from acquisition finance. Used for the build phase of a development. Higher rates, drawdown-by-stage, take-out by an acquisition loan on practical completion.
3 The Bank's Assessment Framework
A commercial credit submission is assessed on five dimensions:
Asset quality
Asset class, location, building specification, alternative use, and capex profile. A modern industrial asset in Western Sydney scores differently to a 1990s suburban office in a tertiary location.
Tenant covenant
Listed national, government, large private corporate, regional private, owner-occupier vacating, vacant possession. Each tier shifts the lender's view of the income's sustainability and therefore the lendable amount.
Lease structure
WALE, rent review mechanism, outgoings recovery, options to renew. Long WALE with outgoings on the tenant and CPI plus minimum reviews is the strongest structure.
Borrower profile
Net worth, liquidity, business income (if owner-occupied), personal credit history, banking history with the lender. Less important than the asset and tenant on investment commercial, more important on owner-occupied.
Loan structure
LVR, term, amortisation, fixed or variable, principal and interest or interest only. Within the bank's appetite envelope, the structure can be optimised for the borrower's cash flow.
4 LVR and ICR Limits
Typical LVR caps (general; lender-specific) for investment commercial:
- Long-WALE national-covenant single-tenant: up to 75%
- Multi-tenant office or retail with reasonable WALE: up to 65% to 70%
- Industrial with modern specification: up to 65% to 75%
- Specialist (childcare, medical, service stations): up to 60% to 70% depending on lender
- Short-WALE, weak covenant, vacant possession: 50% or below
ICR is typically tested at the loan's actual interest cost plus a buffer (often 1.5% to 2.0% above current rates). A loan that meets ICR today must also meet ICR at the buffer-tested rate.
5 Interest Rates and Pricing
Commercial rates are higher than residential. The pricing reflects the absence of LMI, the higher capital weighting under bank capital rules, and the specific credit risk of each transaction.
Headline rates are negotiable. A relationship banker at a major can often shave 25 to 75 basis points off the published rate for a well-presented deal. The negotiation is more productive on full-doc with strong documentation than on lease-doc.
6 The Settlement Process
Indicative approval
Lender provides indicative terms based on the borrower's brief and outline of the asset. Not binding; used to confirm the deal is bankable before exchange.
Formal approval
Lender issues a formal letter of offer after credit committee approval. Specific conditions precedent are listed (valuation, contract review, registered title documents, structural reports).
Valuation
Lender orders an independent valuation. Bank-panel valuers, fee paid by the borrower (typically $2,000 to $8,000 depending on asset). Valuation can come in below contract price, which renegotiates the LVR.
Conditions precedent
Title searches, building inspection (in some cases), tenant verification, lease abstract, GST registration, structural certificates as relevant.
Settlement
On the contract settlement date, lender funds the loan amount, buyer funds the balance plus stamp duty and costs, and the property registers in the buyer's name with the lender's mortgage recorded against title.
7 Practical Buyer-Side Questions
Will the valuation come in at contract price?
Most do; some do not. Asset class, recent comparable evidence, and the valuer's brief from the lender all affect the outcome. A buyer-side comparable sales review before exchange reduces the surprise risk.
What is the rate at refinance in 5 years?
Unknown. The borrower's protection is to keep the LVR conservative enough that a 200 basis point rate move does not breach ICR at refinance.
Can I use the existing lender for the second property?
Often yes, with cross-collateralisation. The trade-off is that the bank's view of the combined portfolio drives the lending decisions for both. Some borrowers prefer to spread loans across two or more lenders to preserve flexibility.
Do I need a commercial broker?
For complex deals, multi-lender shortlists, or borrowers who do not have a direct commercial banker, yes. A commercial broker can compare lender appetite across the panel and present the deal in the form each lender wants to see. Fees are paid by lender or borrower depending on the engagement.
Frequently Asked Questions
Can I use a residential loan to buy commercial property?
No. Commercial property is funded under commercial credit, not residential. Some lenders blur the line for small mixed-use assets, but a freestanding commercial purchase is always commercial credit.
Is interest-only available on commercial?
Yes. Common on investment commercial, less common on owner-occupied. Term and rollover conditions are lender-specific.
What is the longest fixed rate available?
3 to 5 years from major banks; up to 10 years from some non-bank lenders at a premium. Most commercial borrowers refinance at end of fixed rather than running the loan to amortisation.
Can I borrow against existing equity in residential to buy commercial?
Yes, through a separate residential equity release. The residential security stays with the residential lender; the cash freed is used as deposit on the commercial purchase. The commercial loan funds the balance.