Commercial finance glossary

You own the land and the building. Title transfers into your name on settlement.

In lending termsThe strongest security a commercial lender can hold. A registered first mortgage over a saleable asset supports the longest terms and the highest LVRs available for that asset class.

You buy the right to operate from premises somebody else owns, for the balance of a lease term.

In lending termsThere is no real property to mortgage, so the lender looks to the business, the lease and the guarantors. Term remaining is the constraint: lenders generally want the loan to amortise well inside it, and count option periods only where the option is secure.

The property and the trading business change hands together, under one contract and one price. Standard in pubs and bars, motels, caravan parks, childcare and service stations.

In lending termsThe lender splits that single price into property value and business value, then applies a different treatment to each. Knowing the split before you sign is what tells you the real deposit.

What the property is worth empty, with no business trading inside it and no income attached.

In lending termsOn a specialised asset this is usually the figure the LVR is applied to. Where the going concern price sits above vacant possession value, that difference is funded by you, not by the mortgage.

What the property is worth with the business trading, the licence in place and the income running.

In lending termsValuers frequently report both bases. Which one the credit team works from drives the whole deposit calculation, and it varies by lender and by asset class.

A property built for one purpose with a limited pool of buyers: a service station, a childcare centre, a car wash, a funeral home.

In lending termsLenders reduce LVR and shorten terms on assets they would struggle to sell quickly. It does not stop the deal. It changes which lenders will look at it and on what basis.

Whether you trade from the property yourself or lease it to a tenant.

In lending termsOwner-occupied deals are assessed on your business's capacity to service the debt. Investment deals are assessed on the rent, shaded, plus your other income. Different policy, often a different lender.

The rent actually being received today, after outgoings, rather than the rent the property could achieve if fully let at market rates.

In lending termsCredit assesses passing income, not potential. Vacancies, incentives and rent-free periods all reduce the figure the lender works from.

Gross rent has outgoings built into it. Net rent is the landlord's income after the tenant pays outgoings separately.

In lending termsA gross figure looks larger and services worse once outgoings are stripped out. Confirm which basis a listed yield uses before you compare two properties.

Council rates, land tax, insurance, strata levies, water and maintenance on the property.

In lending termsWhoever carries them changes serviceability. Where the lease leaves them with the landlord, the lender deducts them from assessed income.

The average time remaining on the leases in a property, weighted by the income each one produces.

In lending termsA short WALE is income the lender cannot rely on for the full loan term. It typically shortens the term offered or reduces the LVR rather than stopping the deal.

How rent moves during the lease: a fixed percentage, CPI, a market review, or a ratchet clause preventing decreases.

In lending termsFixed and CPI reviews give credit a predictable income line to model. Market reviews introduce a variable the lender may shade.

The obligation to return leased premises to an agreed condition when the lease ends.

In lending termsA future cash cost sitting outside the P&L. It matters on leasehold purchases and on fit-out finance, where the loan term should sit inside the lease term.

What the local planning instrument allows on the site, and whether your intended use is approved.

In lending termsIf the use is not permissible or the approvals are not in place, both the valuation and the credit assessment stall. Confirm it before the contract goes unconditional.

A liquor licence, a childcare service approval, a fuel supply agreement. Often a substantial part of what you are paying for.

In lending termsLicences transfer on their own timetable and their own conditions. Lenders treat licence value as business value rather than property value, and settlement can turn on the transfer completing.

Torrens title, strata title or company title. Torrens is standard freehold ownership.

In lending termsCompany title is outside policy for most commercial lenders. Strata brings levies, by-laws and the owners corporation's finances into the assessment.

Investigation of contamination risk on the land. Relevant to service stations, panel beaters, dry cleaners and older industrial sites.

In lending termsA Phase 1 flag triggers a Phase 2 investigation, and an unresolved contamination issue can stop a lender proceeding. Build the time into the contract rather than the finance clause.

What is fixed to the building and forms part of the real property, against what is equipment that could be removed.

In lending termsThe mortgage covers the property. Equipment is generally funded separately over a shorter term. Splitting the two correctly stops you amortising a machine over twenty years.

The value of a business above its tangible assets: reputation, systems, trading history, customer relationships.

In lending termsGoodwill has no resale value to a lender, so it is generally funded from your own contribution or against other security you hold. This is why a going concern purchase needs more cash than the headline LVR suggests.

Earnings before interest, tax, depreciation and amortisation. The standard proxy for operating cash flow.

In lending termsThe starting point for almost every commercial serviceability assessment, before add-backs and before the lender's own adjustments.

EBITDA with rent added back on top.

In lending termsUsed where you are buying the premises you currently lease. Adding the rent back shows what the business earns once it stops paying a landlord, which is frequently the entire case for the purchase.

Adjusting reported profit for items that are not ongoing operating costs: owner's wages above market rate, one-off legal or restructuring costs, private expenses run through the business, non-recurring write-offs.

In lending termsAdd-backs are only as strong as the evidence behind them. Each one needs a document and an explanation attached, not an assertion, because credit will test the ones that move the number most.

Two to three years of financial statements, BAS lodgements and management accounts for the current year.

In lending termsLenders weight consistency more heavily than a single strong year. A dip needs its explanation attached to the submission before credit finds it on their own.

Your integrated client account balance, lodgement status and any payment arrangement in place.

In lending termsArrears and unlodged returns are among the most common reasons a strong-looking application is declined. A payment plan being serviced is far better disclosed at the start than discovered at assessment.

Revenue less cost of goods sold, expressed as a percentage of revenue.

In lending termsShows whether growth in revenue is converting into profit. A falling margin against rising turnover is a question you will be asked to answer.

The time between paying your suppliers and being paid by your customers.

In lending termsA long cycle means growth consumes cash. It usually points to an overdraft or line of credit sitting alongside the property loan rather than a larger term facility.

The average number of days taken to collect an invoice.

In lending termsRising debtor days signal cash flow pressure well before the profit and loss shows it, which is exactly why credit teams track the trend rather than the number.

How much of your revenue depends on a single customer, contract or referral source.

In lending termsHigh concentration is a risk lenders structure around rather than decline outright. Documented contract terms and remaining length carry real weight here.

Predictable peaks and troughs in trading across the year.

In lending termsAssessed across a full cycle rather than the most recent quarter. It matters most in accommodation, agriculture, hospitality and retail, where a single quarter misrepresents the business.

Work already won and under contract but not yet invoiced or recognised.

In lending termsTurns a forecast into something credit can reference. Signed contracts carry weight; a pipeline of opportunities does not.

How much the business depends on one operator's licence, clinical skill or relationships.

In lending termsDrives guarantee and insurance conditions more than it drives pricing. Succession arrangements and a second qualified operator both reduce it.

The agreement governing your franchise: term remaining, renewal options, transfer conditions and franchisor consent.

In lending termsLenders match the loan term to the franchise term remaining, and require the franchisor's consent to the transfer as a condition of settlement.

The operating metrics a specific industry is measured on: occupancy and licensed places in childcare, the wet, dry and gaming split in pubs and bars, billings and service fee models in medical practices, fuel volume and shop margin in service stations.

In lending termsCredit teams that lend into a sector benchmark your figures against these directly. Presenting them before you are asked removes a round of questions from the assessment.

A security interest over all present and future assets of a company, registered on the PPSR. It replaced the fixed and floating charge under the Personal Property Securities Act.

In lending termsStandard on most commercial and business lending. It extends the lender's position past the property to the assets of the business, so any future financier will need to know it exists and where they would rank behind it.

Security over one identified asset rather than everything the company owns.

In lending termsNarrower than a GSA, and worth raising where the business needs to keep other assets unencumbered for future funding.

The Personal Property Securities Register records security interests over assets other than land.

In lending termsA search shows every financier already holding a position over the business. Existing registrations shape what a new lender can take and where they rank.

Using more than one property as security for a single facility, or linking several facilities to a shared pool of security.

In lending termsIt lets a lender look at equity across more than one asset rather than only the property being purchased. It also ties those assets together, so selling or releasing one later needs the lender's consent and usually a revaluation of the whole position.

Wording in a mortgage or security agreement under which the security covers everything you owe that lender, not only the loan it was taken for.

In lending termsClose to universal, and frequently the reason a property cannot be released while an unrelated facility with the same lender remains outstanding.

A commitment by a director, related company or third party to meet the debt if the borrower does not.

In lending termsDirectors' guarantees are a standard term on commercial lending. Whether a guarantee is capped at an amount or unlimited is a point worth raising at term sheet stage rather than at settlement.

A certificate confirming a guarantor received advice from their own solicitor before signing.

In lending termsRequired where a guarantor does not benefit directly from the loan. It is a condition of settlement, so it belongs on the timeline from the day the offer is issued.

A clause making a default on one facility a default on the others held with that lender.

In lending termsCommon wherever facilities share security. It is the reason an unresolved issue on a small account can affect the entire position.

An agreement between two or more financiers setting out who ranks first over shared security.

In lending termsNeeded where an equipment financier and a property lender both hold positions over the same company. Negotiating one takes time, so it belongs on the settlement timeline early.

The landlord agreeing to the lender's security over fit-out or equipment inside leased premises, and to notify the lender before terminating the lease.

In lending termsRegularly the slowest condition on a leasehold deal, because it depends on a third party with no stake in your timeline. Start it the day the lease terms are agreed.

An undertaking not to grant security to another party without the lender's consent.

In lending termsRestricts future borrowing while the facility is on foot. Worth understanding at the offer stage if further funding is likely inside the term.

Releasing one property from a security pool, or swapping one security for another.

In lending termsThe lender re-tests the remaining position before agreeing to either. This is where cross-collateralisation costs flexibility, and why the structure is worth thinking about at the start.

A registered interest ranking behind the first mortgagee.

In lending termsUsed in shorter-term and bridging structures. It needs the first mortgagee's consent, which is not automatic and is not always given.

Whether the business and the borrowers can meet the repayments from income the lender is prepared to assess.

In lending termsThe gate every commercial application passes through. Security answers what happens if it fails; serviceability answers whether it will be repaid.

Assessed earnings divided by interest expense.

In lending termsThe common test on commercial property lending. The lender sets a minimum and tests it at their assessment rate rather than the rate you are offered.

Assessed earnings divided by total debt service, counting principal as well as interest.

In lending termsStricter than ICR because principal is included. Applied to trading businesses and to amortising facilities.

A rate set above the actual rate, used to test whether repayments still work if rates rise.

In lending termsIt explains why a deal that works comfortably at today's rate can still fall short on paper. Buffers differ between lenders, which is why capacity can vary widely on identical figures.

Discounting assessed rent below the rent actually received, to allow for vacancy, costs and re-letting.

In lending termsStandard on investment lending. Two lenders shading differently will produce materially different capacity from the same lease.

Total debt measured against operating earnings.

In lending termsA fast read on whether the business is carrying more debt than its cash flow supports. Frequently capped by a covenant for the life of the facility.

The loan divided by the lender's accepted valuation, not by the price you agreed to pay.

In lending termsWhere the valuation lands below the contract price, the gap is funded by you. On a going concern purchase, check which valuation basis the LVR is being applied to before you rely on it.

Ongoing conditions inside the loan. Financial covenants such as ICR, LVR and debt to EBITDA; non-financial covenants such as annual financials, insurance and no further security without consent.

In lending termsCommercial debt is a continuing relationship rather than a set-and-forget product. A covenant breach can trigger a review even where every repayment has been made on time.

The lender's scheduled reassessment of a facility, usually yearly.

In lending termsOne of the largest differences between commercial and residential lending. Facilities can be repriced or restructured at review, so the reporting obligations are worth reading closely before you sign.

The evidence tiers. Full financial statements; a lease-supported assessment on an investment property; or alternative verification such as BAS and an accountant's declaration.

In lending termsThe right tier is the one your evidence actually supports. A declined application stays on your credit file, so the tier is worth settling before lodgement rather than after.

Policy is what a lender has written down. Appetite is what they are actively looking to write this quarter.

In lending termsTwo lenders with near-identical policy can respond very differently to the same deal. Appetite moves, and it is not published.

Putting the numbers and the structure to a credit team informally, before a formal application is lodged.

In lending termsEstablishes appetite before valuation fees and application fees are incurred, and before an application is recorded.

A written outline of the structure, pricing and conditions a lender is prepared to consider.

In lending termsNot an approval. It is a basis for comparison and negotiation, and the conditions listed on it are the ones that will need satisfying later.

Approval subject to outstanding items, against approval with nothing left to satisfy.

In lending termsOnly unconditional approval is safe to rely on when a contract is about to go unconditional.

Items that must be satisfied before drawdown: valuation, insurance, independent legal advice, landlord's consent, licence transfer, priority deeds.

In lending termsConditions precedent, rather than credit itself, are what usually move a settlement date. They should be listed and started the day the offer is issued.

The lender instructs the valuer from their own panel. The valuer's duty of care runs to the lender, not to you.

In lending termsYou cannot choose the valuer, and a valuation obtained privately is rarely accepted. A prepared information pack handed over at inspection is the legitimate way to make sure nothing relevant is missed.

The window in the contract for your investigations. Most commercial contracts carry no statutory cooling off period.

In lending termsFinance timelines have to fit inside it. Valuation, conditions precedent and third party consents all consume it, which is why the finance clause is negotiated alongside the price.

The sale of a business as a going concern can be GST-free where the legislative conditions are met and both parties agree in writing.

In lending termsIt changes the cash required at settlement substantially. Your accountant confirms whether the sale qualifies, and we structure the funding around that answer.

State-based taxes on the transfer of property and on the land you hold. Rates, thresholds and concessions differ by state.

In lending termsPart of acquisition costs and generally funded from your contribution rather than the loan, so they belong in the deposit calculation from the start.

The structure used when a self-managed super fund borrows to buy property. The asset is held in a separate holding trust and the lender's recourse is limited to that asset.

In lending termsA narrower lender panel, different LVRs and stricter documentation than a standard purchase. Whether an SMSF purchase suits you is a question for your accountant and your licensed adviser. We arrange the finance once that decision is made.

Where your trading business leases the premises from an entity you also control.

In lending termsThe rent needs to be on arm's length terms and properly documented. Lenders assess it, and it is one of the first things a credit team checks on an owner-occupier structure.

Selling a property you own and leasing it back from the buyer under a new lease.

In lending termsReleases capital tied up in the asset and converts ownership into a lease obligation. The lease terms you agree drive what the buyer's own lender will accept.

Instruments used in place of a cash deposit at exchange.

In lending termsA bank guarantee is usually secured against cash or property and takes time to issue. Confirm the vendor will accept one before you build your timeline around it.