Commercial finance is form of secured term loan backed by commercial real estate and a common form of financing for relatively mature businesses. Commercial loans are loans provided for a fixed time period that are ‘secured’ by a physical asset that is owned by the business or one of the directors and has an assessable value.
The need to know
- Commercial finance and secured business loans have very similar features and structures to a home loan.
- Can have terms of 12 months all the way to 30 years depending on the product.
- Most commonly used to purchase commercial property or occupation for investment via a business vehicle.
- Often result in lower interest rates when compared to unsecured or other forms of business finance given the commercial collateral backing the transaction.
Categories of loans
There are multiple types of commercial finance products available depending on the loan need and the asset looking to be financed.
| Metric | Full doc | Low doc | No Doc / Lease Doc |
|---|---|---|---|
| Amount | Unlimited (depends on asset) | $350k – $20m | $350k – $20m |
| Max LVR | 80% | 80% | 70% |
| Term | 1 – 30 years | 1 – 30 years | 3 – 25 years |
| Rates | 4.2 – 10.0% p.a. | 5.5 – 15.0% p.a. | 6.4 – 12.0% p.a. |
| Fees | 0.5 – 1.5% | 1.25 – 3.30% | 1.0 – 3.3% |
| Key requirements | • 2 years business financials • ATO portal outputs • Statement of directors' assets & liabilities • Valuation of target property • Personal & business tax returns |
• Accountant letter for proof of income • Valuation of target property • Statement of director assets & liabilities |
• Self-certified income • Valuation of target property • Statement of director assets & liabilities |
Key acceptance criteria
For a high chance of approval, a business must satisfy at least 2 of the below criteria.
- Target property is identified
- Client contributing at least 25% equity to the transaction
- Significant income other than proposed lease income (if investment property)
Example scenario
Commercial Warehouse purchase
Client needed funds to purchase a commercial warehouse for storage and retail shop front.
Key transaction terms
- Amount – $260k
- Term – 15 years
- Product – Commercial bank loan
- Result – The settlement date for the lease was unexpectedly brought forward. The Valiant team was able to work closely with a lender to get a fast-tracked approval, therefore avoiding any settlement penalty fees.
More information
For more information on commercial loans, you can read more about them at Valiant. Check out the links below.
For more information on Connective's partnership with Valiant or Valiant's business loan platform please contact your Broker Support Manager, Valiant BDM, by calling them on 02 9571 0218 or connective@valiant.finance
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