Your first commercial property: what to expect and how to assess your position
Purchasing commercial property for the first time is a different process to residential, and most business owners discover that difference only after they've started. The lender panel is broader and more varied, the assessment criteria weight business financials more heavily than personal income, the deposit structures are different, and the valuation process has variables that don't exist in residential deals.
According to the ABS, 97.2 percent of all businesses in Australia are small businesses with fewer than 20 employees. The vast majority of these businesses lease their premises. Many are in a stronger position to finance a commercial property purchase than they've been led to believe, but without a clear understanding of how the process works and what lenders actually assess, that position stays unexplored.
Each week we speak with business owners who are approaching their first commercial property purchase. Some have been considering it for years. Some have had a preliminary conversation with their bank and walked away confused or discouraged. This article sets out what the process actually involves and what factors determine whether your business is in a position to support the finance.
How commercial property finance differs from residential
If your previous finance experience is residential, several aspects of commercial lending will be unfamiliar.
The lender panel is different. The major banks compete actively in residential lending. In commercial owner-occupier finance, non-bank lenders, credit unions, and specialist commercial lenders play a much more significant role, particularly for deals under $3 million or for asset types that require specialist knowledge. A mortgage broker operating in commercial finance works with a panel of 30 to 50 or more lenders. Access to that panel, and knowledge of which lenders suit which deal profile, is one of the primary reasons a specialist broker adds value.
Business income drives the assessment. For owner-occupier commercial finance, your business financials are the primary serviceability document. Lenders want to see two years of business tax returns, current BAS statements, and clear evidence of operating cashflow. Personal income is a factor, but the business's ability to service the debt is the central question.
Deposit requirements are higher. Commercial property typically requires between 20 and 30 percent of the purchase price plus acquisition costs. However, that deposit doesn't need to come entirely from cash. Equity in residential or commercial property, where available, can be structured into the deposit position.
Valuations can vary. Commercial property valuations are more variable than residential, particularly for specialist assets or properties with limited comparable sales. The lender's panel valuer, and their familiarity with the asset type, has a direct impact on the valuation outcome. A specialist broker selects lenders whose panel valuers are suited to the specific asset being purchased.
What a lender is actually assessing
For a first-time commercial property buyer, the lender's credit assessment focuses on four areas.
Business cashflow. Does the business generate sufficient income to service the proposed debt, with or without the rent displacement calculation applied? Consistent, documented cashflow over two or more years is the strongest indicator.
Business trading history. How long has the business been operating, and is the revenue stable or growing? Three or more years of trading with clean financial records is the baseline most lenders work from for owner-occupier commercial.
The deposit position. Where is the deposit coming from, and does it represent a sufficient equity stake in the deal given the asset type and lender's LVR requirements?
The asset. Is the property a type the lender understands and has precedent for? What do comparable sales look like, and does the valuation support the purchase price?
Conversation from the Desk
A physiotherapy practice owner in Sydney's inner west had been leasing her premises for four years and had begun looking at purchasing a small strata medical suite in the same suburb. She'd spoken to her bank, which had indicated it wasn't a deal they could assist with given the purchase size and asset type. She came to us expecting a similar answer. When we reviewed her position, her practice financials were strong, she had four years of clean BAS statements, and she had equity in a residential property that covered the deposit without requiring her to draw on practice cash reserves. The issue with the bank conversation wasn't her borrowing position. It was that the bank's commercial lending desk didn't have appetite for sub-$1.5 million medical strata assets. We identified two non-bank lenders on our panel whose credit teams were familiar with that asset type and outlined what the application would need to include to support the right LVR. The pathway was straightforward once the right lender match was identified.
The process from first conversation to settlement
Understanding the timeline and the steps involved removes a significant amount of the uncertainty that surrounds first commercial purchases.
Pre-approval or indicative assessment. Before you begin your property search in earnest, a specialist broker can give you a clear read on your borrowing position: what lenders are suited to your profile, what deposit is required, and what LVR you can expect based on your financials and the asset types you're looking at. This shapes your search rather than following it.
Property identified and contract signed. Once a property is under contract, the formal application process begins. The broker prepares and lodges the application with the most suitable lender, including the business financials, asset documentation, and the rent displacement calculation where applicable.
Valuation. The lender orders an independent valuation from their panel. This typically takes one to three weeks depending on the asset type and valuer availability. For specialist assets, the broker's lender selection at the outset directly affects the valuation outcome.
Credit assessment and approval. The lender's credit team reviews the application and valuation. Commercial credit assessments are more manual than residential, and turnaround times vary by lender. A specialist broker who has an existing relationship with a lender's commercial team can often provide visibility on timing and any additional information requirements.
Settlement. Commercial property settlements typically run 60 to 90 days from contract exchange. This is worth factoring into your contract negotiation, particularly if there is any complexity in the finance structure.
Commercial mortgage and finance for first-time commercial buyers
Ardent Capital Group works with business owners purchasing their first commercial property across industrial, medical, and retail asset classes throughout Australia. We understand the full spectrum of lenders suited to first-time commercial buyers, how to structure applications that reflect the genuine strength of a business's financial position, and how to navigate the variables that make commercial finance different from residential. If you're ready to understand your position clearly, start with a conversation with our team.
Written by
Nick Chong
Director & Founder, Ardent Capital Group
Nick Chong founded Ardent Capital Group to give business owners and investors direct access to commercial finance done properly. He works across purchase, refinance and equity release, structuring deals with the right lender for the situation rather than the first one to say yes. If you want a clear read on your borrowing position, that conversation starts with a call.
