Private Commercial & Business Finance in Australia

What does commercial finance cover?

Commercial finance is lending for a business or investment purpose. It comes in two broad families: loans secured against commercial property, and finance to run and grow a business. Many borrowers use both, such as a loan on their premises and a line of credit for day-to-day cash flow.

Credit for personal, domestic or household purposes, or to buy, renovate or improve residential property as an investment, is consumer credit regulated under the National Credit Code; credit wholly or mainly for business purposes generally falls outside it. That puts more weight on the loan documents themselves, so have your own lawyer read them before you sign.

Commercial property funding: owner-occupied or investment?

Owner-occupied commercial property

Your own business is the tenant. Owners buy to stop paying rent, secure their location and build an asset. The lender looks mainly at the business: its profits, trading history and capacity to carry the repayments. The risk is concentration: if the business struggles, the property loan is under pressure at the same time.

Investment commercial property

The property is leased to someone else and the rent services the loan. The lender looks first at the lease, the tenant and the rent, then at you and your other assets and debts. A long lease to an established tenant is worth more than the same building half empty.

Refinancing and equity release

Refinancing moves a commercial loan to a new lender, usually because it is expiring, its terms no longer suit or the lender wants to exit. Equity release, often searched as business equity, borrows against value built up in a property. Lenders want to know what the funds are for; a clear business purpose with a repayment plan carries weight.

Which commercial properties can you finance?

Lenders favour property that is easy to let and to sell. The more general-purpose the building, the more lenders will consider it and the more they will lend against it.

• Offices, including strata office suites and medical or professional suites
• Retail: shops, strip retail and shopping centres
• Industrial: factories, warehouses, workshops and logistics sites
• Mixed use: shops or offices with homes above
• Specialised property: childcare centres, hotels and pubs, service stations, self storage and other going-concern assets, where the value depends on the business trading inside

Fewer lenders fund specialised property, and a bank's credit policy may cap what it lends against a single-use building, so private and non-bank lenders often step in here. Land you plan to build on is development finance, a separate kind of lending.

How commercial property lenders assess a loan

A commercial lender lends against an income stream as much as a building. Each lender has its own credit policy, but the questions are much the same.

The lease and the tenant

The lender reads the lease: the rent and its reviews, who pays outgoings such as rates and insurance, options to renew and the bond held. An established tenant with solid finances is a lower risk than a new business, and one tenant is riskier than several, because one departure empties the building.

Remaining lease term and vacancy

Lenders check how long the leases have left to run, often as the weighted average lease expiry (WALE): remaining terms across the building, weighted by rent. The shorter it is, the sooner income could stop. Vacant space earns nothing, so lenders allow for the time and incentives needed to find a tenant.

The valuation

The lender orders a valuation from its own panel, usually at your cost, based mainly on the property's income and comparable sales. It lends against that figure, so if it comes in under the price, you fund the gap.

Your servicing and the LVR

For an investment, lenders test whether net rent covers the interest with room to spare (interest cover); for an owner-occupied property, whether business profit covers all debt repayments (debt service cover). They also cap the loan-to-value ratio (LVR), the loan as a share of value, usually below a home loan's, so expect to contribute more.

Full doc, low doc and lease doc commercial loans

"Doc" means the documents that prove you can repay. The less you can prove, the fewer lenders will consider the loan and the more it is likely to cost.

• Full doc: financial statements, tax returns, business activity statements (BAS) and bank statements. It suits established, profitable businesses and investors, opens up more lenders and generally costs less.
• Low doc: income shown through BAS, business bank statements or an accountant's letter. It suits self-employed borrowers whose tax returns are behind or understate current earnings. Expect a lower LVR and a higher price.
• Lease doc: assessed mainly on the property's rent under its lease, not on your personal or business income. It suits investors with a well-leased building, not a vacant property or a lease close to expiry.

Secured business finance or an unsecured business loan?

Security is the asset a lender can sell if the loan is not repaid. It decides much of what you can borrow, for how long and at what cost.

Secured business finance is backed by a mortgage over property, by specific equipment, or by a general security agreement: a claim over all of the business's present and future assets. Property security supports larger amounts and longer terms at a lower cost.

An unsecured business loan relies on the business's cash flow and, usually, on the directors signing as personal guarantors. Amounts tend to be smaller, terms shorter, costs higher and repayments more frequent.

• Secured suits premises, equipment, refinancing existing debt and larger, longer-term needs.
• Unsecured suits a short-term need for a profitable business with no property to offer.
• Neither suits covering continuing losses with no plan to fix them.

Working capital, lines of credit and overdrafts

Working capital is the cash tied up between paying suppliers and staff and being paid by customers. Growing businesses can run short of it even while profitable, because sales grow before the cash arrives.

• Overdraft: your transaction account can go below zero to an agreed limit. You pay interest on what you use and usually a fee on the limit. It is often reviewed each year, so it suits short swings, not permanent funding.
• Line of credit: draw and repay up to a limit, usually secured against property, paying interest only on the balance drawn. It suits seasonal or uneven cash flow, if the balance falls in good months.
• Working capital loan: a lump sum repaid over a set, usually short, term, for a defined need such as funding a large contract.

Match the facility to the need. A long-term asset on a short-term facility creates refinance pressure, and everyday cash flow on a long-term loan means paying for it long after the need has passed.

Equipment, asset and invoice finance

Equipment and asset finance

Equipment finance funds vehicles, machinery, plant and technology, secured mainly by the asset. Under a chattel mortgage (a chattel is movable property), your business owns the asset from the start and the lender holds a mortgage over it until repaid. Leases and hire purchase are alternatives, each taxed differently, so ask your accountant.

Some contracts end with a balloon, a lump sum owing at the end that lowers repayments but must be paid or refinanced. Assets that hold their value are easier to fund than specialised machinery or fixed fit-outs.

Invoice and debtor finance

Invoice finance, or debtor finance, advances part of the value of unpaid invoices; when the customer pays, you receive the balance less fees. With factoring the financier collects; with invoice discounting you collect, often confidentially. It suits credit sales to creditworthy businesses, not cash sales or a few dominant customers.

Business loans for startups and new businesses in Australia

Business lending is mostly assessed on trading history, so a new business has to give the lender other reasons to believe the loan will be repaid:

• Security, such as property you or a director own
• Experience running or managing a similar business in the same industry
• A business plan with cash-flow forecasts and the assumptions behind them
• Your own contribution, which shows commitment and shares the risk
• Evidence of demand: signed contracts, letters of intent or pre-orders
• Other income that can carry the repayments while the business establishes

Private business loans for startups are usually secured against property, and the lender weighs the security and your exit plan more than trading figures. That can fund a launch a bank will not, but the debt is real from day one. If the plan rests on untested forecasts, investor equity or a smaller start may suit better.

Buying an existing business

Buying a business that already trades is a different loan: the lender assesses the seller's figures, the goodwill and the handover. It has its own page.

Bad credit or ATO debt: can you still borrow?

A default or unpaid tax narrows the field without closing it. A bank may decline on policy alone, while some private and non-bank lenders look at the full story and the security.

Lenders want to know what happened, whether it is resolved and why it will not recur. Disclose it up front: a problem the lender finds for itself in a credit check undermines everything else you have told it.

With ATO debt, lenders ask how much is owed, whether a payment arrangement is in place and being kept, and whether the new loan pays it out. Some private lenders refinance tax debt against property. If the business is still losing money, that only buys time at the property's risk, so check with your accountant first.

Private and non-bank commercial lenders versus banks

A bank is often the lower-cost choice for a straightforward commercial loan, but it works to a fixed credit policy: a loan that misses one rule is often declined whatever its strengths. Non-bank lenders usually have broader policies, and private lenders, funded by private investors or funds, judge each loan on its merits. Between them, they often consider:

• Low doc and lease doc loans
• Specialised property and industries a bank avoids
• Second mortgages behind an existing loan
• Credit issues and ATO debt
• Short-term loans that bridge to a sale or a refinance

Pricing for risk

Flexibility costs money. Private loans carry higher interest and fees than a bank loan and shorter terms. They are often interest-only, with the interest sometimes prepaid or capitalised (added to the loan). The lender needs your exit strategy, usually a sale or a refinance to a lower-cost lender.

Private credit is not private equity

Searches for private equity business loans mix two things. Private equity buys part of your business: there are no repayments, but you give up ownership and some control. Private credit is a loan: you repay it and keep ownership. ADS.finance is a loan marketplace, so a request there is for a loan.

Commercial finance brokers and business mortgage brokers

A commercial finance broker arranges business and commercial loans from the lenders on its panel; a business mortgage broker arranges property-secured loans for business or investment. Either way the job is matching you to lender policies, presenting the loan as a credit team needs it and managing it to settlement.

How brokers are paid

Brokers are usually paid a commission by the lender, a fee from you, or both. Ask before you engage one, and have the arrangement set out in writing before you commit. Ask too how many lenders they work with, because a broker can only place your loan with lenders on its panel.

Looking for a commercial broker near me?

Local knowledge helps with some property, but most commercial broking happens by phone, email and documents. Experience with loans like yours matters more than distance: ask how many similar loans they have arranged recently.

What commercial and business finance costs

Compare the total cost over the time you expect to hold the loan, not just the interest rate. The costs to ask about, by type:

• Property loans: interest, an establishment fee, the valuation fee, the lender's legal costs as well as your own, and registration costs
• Private loans: higher interest, often prepaid or capitalised, an establishment fee and any fee to repay early or extend
• Overdrafts and lines of credit: interest on the balance drawn plus a line fee on the whole limit
• Equipment finance: interest, a documentation fee and any balloon at the end
• Invoice finance: a discount fee on the funds advanced and a service fee

Read every offer for break costs, charged if you repay a fixed-rate loan before its term ends, and for default interest, a higher rate charged if you fall behind.

The risks: guarantors, cross-collateral and refinancing

Personal and directors' guarantors

When a company or trust borrows, lenders usually ask its directors to sign as personal guarantors. You become personally liable, and if the business cannot pay, the lender can pursue your personal assets, including your home. Take independent legal advice before you sign.

Cross-collateral

Cross-collateralisation ties several properties to one loan, or one property to several loans, so selling or refinancing one may need the lender's consent and a paydown of other debt. Watch for "all monies" clauses, under which a mortgage secures everything you owe that lender.

Refinance risk at expiry

Commercial loans often run shorter than you plan to hold the property, and private loans shorter still. If values fall, a lease ends or lenders tighten, the refinance may be smaller or dearer. Start well ahead of expiry and keep a second exit in mind.

Covenants

Covenants, such as a minimum interest cover or a maximum LVR, are tested at reviews and revaluations. You can be in default even with every repayment on time.

When commercial finance is the wrong choice

Do not borrow when repayments depend on untested income, when the loan only funds continuing losses, or when a short-term private loan has no realistic exit. Fixing the business, selling an asset or bringing in an investor may serve you better.

Documents to have ready for commercial or business finance

For the business and borrowers

• ID for every borrower, director and guarantor
• The ABN, a company extract and any trust deed
• Financial statements and tax returns for recent years, and this year's management accounts
• BAS, business bank statements and your ATO account statement
• A statement of assets, liabilities and existing debts
• For a startup, the business plan and forecasts

For the property

• The contract of sale, or the existing loan's statements for a refinance
• Every lease and variation, and a tenancy schedule with rents and expiry dates
• Outgoings: rates, insurance, strata levies and land tax
• Any recent valuation, building report or environmental report

Getting commercial or business finance through ADS.finance

ADS.finance is a loan marketplace, not a lender. It does not lend money, does not give financial or credit advice and does not recommend any lender or loan. You post one loan request, and ADS checks every loan request before it goes live to the network.

The network is 200+ verified Australian Finance Providers: private lenders, non-bank lenders, mortgage brokers and commercial finance brokers. ADS checks each provider's ABN and business details before an admin approves them. Lenders and brokers can ask you about the request, and one can take it on and contact you. You are never obliged to go ahead.

What to put in your request

• The loan type: commercial property, business, working capital or bridging
• The amount (from $100,000) and what it is for
• Where the property is, or where the business trades
• How soon you need the money, or your settlement date
• The security, and for a property its lease, tenant and remaining term
• Full doc, low doc or lease doc, and how long the business has traded
• Any credit issues or ATO debt, and how the loan will be repaid

There is no credit check to post: ADS.finance does not access your credit file, and a lender you later choose to deal with generally needs your consent before it checks it. Each lender and broker sets its own rates, fees and lending criteria and is responsible for its own licences and disclosures.