Commercial property loans explained
Borrowing to buy a shop, an office, a warehouse or a factory works differently from buying a house. The property earns its keep from a lease, so lenders look at the tenant and the rent as hard as they look at you. This guide unpacks how commercial property finance is assessed in Australia.
Last updated July 2026 · about 10 minute read · written by the Seek Mortgages editorial team
A commercial property loan is finance secured against property used for business rather than for living in: retail shops, offices, warehouses, factories, medical suites, childcare centres and the like. It can fund an owner-occupier buying premises to run their own business from, or an investor buying a tenanted building for the rent and capital growth. The mechanics look familiar to anyone who has held a home loan, but the assessment is a different animal, because the property is expected to pay for itself.
The lease does a lot of the talking. On a residential loan, a lender mostly assesses you. On a commercial loan, it also assesses the tenant, the rent and how long the lease has to run. A strong lease to a solid tenant can be the single biggest factor in whether, and on what terms, the loan is approved.
How a commercial loan differs from a home loan
The differences are not cosmetic. They change how much you can borrow, how long you have to repay, and what the loan costs. Four stand out.
- Lower loan-to-value ratios. Where a home loan might reach 80% or higher, commercial lending commonly sits around 65% to 80% of the property value depending on the asset type, so a larger deposit is usually needed.
- Shorter loan terms. A 30 year term is standard on a home loan. Commercial loans often run over shorter terms, and some are structured with a review or a balloon at the end rather than a clean amortisation to zero.
- Rates set on risk. Pricing reflects the property type, the tenant, the lease and the borrower. A generic warehouse with a national tenant prices very differently from a specialised, single-use building.
- Cash flow, not just income. The lender wants to see the rent comfortably covers the repayments, measured through an interest cover ratio, not only your personal serviceability.
The interest cover ratio, the number that matters
For an investment purchase, lenders lean heavily on the interest cover ratio, or ICR. It measures how many times the property income covers the interest on the loan. If a building earns rent that covers the interest one and a half or two times over, the loan has a cushion if a rate rises or a tenant is slow to pay. A thin margin makes the same loan look fragile. Owner-occupiers are assessed more like a business borrower, on the trading performance of the business that will occupy the premises.
Full doc, lease doc and low doc
Just as with residential lending, there is more than one way to evidence a commercial deal. Which path fits depends on the tenant, the lease and how much financial paperwork you can produce.
| Approach | How it is assessed |
|---|---|
| Full doc | The lender reviews full financials, tax returns and business performance, and generally offers the sharpest terms. |
| Lease doc | The loan is assessed mainly on the lease and its rent, on the logic that a strong lease covers the repayments. Useful when the tenant is strong but the borrower's paperwork is light. |
| Low doc | Reduced income verification for borrowers who cannot supply full financials, usually at a lower LVR and a higher rate to offset the reduced information. |
If your income sits mostly inside a business you run, the trade-offs will feel familiar from our low doc loans guide, where alternative income verification and its costs are set out in more detail.
Owner-occupier or investor
The purpose of the purchase shapes the whole application.
- Owner-occupier. You are buying premises to trade from. The lender studies the business that will pay the loan, so its accounts, margins and history carry the weight.
- Investor. You are buying a tenanted building for its income. Here the lease and the tenant covenant, meaning the tenant's financial strength, drive the assessment.
- Inside super. A self-managed super fund can buy commercial property through a limited recourse borrowing arrangement, and a fund may lease business premises it owns to a related party at market rent, which is not allowed for residential property. Our SMSF home loans guide explains the LRBA structure that applies.
Watch the GST line. Commercial property sales and leases can attract GST, unlike an ordinary home. Depending on the deal, the margin scheme or a sale as a going concern can change the amount payable, so the contract wording matters and the numbers should be checked before you commit. Confirm the position with the ATO guidance and your accountant.
What it costs beyond the rate
The advertised interest rate is only part of the picture. A commercial purchase carries a wider set of upfront and ongoing costs than a home loan, and they are worth budgeting for before you make an offer.
| Cost | What to expect |
|---|---|
| Deposit | Commonly larger than a home loan given the lower LVR, so plan for a bigger contribution. |
| Valuation | Commercial valuations are more detailed and cost more than a residential valuation. |
| Establishment and legal fees | Application, documentation and legal costs on the security. |
| Ongoing review | Some facilities are reviewed annually, which can mean updated financials and, occasionally, revised terms. |
| GST and stamp duty | Transaction taxes that vary by state and by the structure of the deal. |
The risks to weigh up honestly
Commercial property can deliver higher yields than residential, but the risks are sharper too, and they tend to arrive together.
- Vacancy hurts more. A commercial vacancy can last months, and the loan repayments do not pause while you find a new tenant.
- Tenant concentration. A single-tenant building lives and dies on one lease. If that tenant leaves or fails, so does the income.
- Rate and review risk. Shorter terms and periodic reviews mean the goalposts can move before the debt is repaid.
- Fewer consumer protections. Business and investment lending generally sits outside the consumer credit protections that apply to a home loan, so the contract is doing the work.
A commercial loan is only as strong as the income under it. Before the rate, the LVR or the term, the question that decides the deal is whether the rent will keep paying when something goes wrong.
Where to read next
If you are comparing this against a standard residential purchase, start with our prime home loans guide to see how mainstream serviceability works. Self-employed borrowers should read low doc loans, investors buying through super should read SMSF home loans, and if a deal needs to move faster than a bank can manage, private mortgages covers short-term funding. The glossary defines the lending terms used here, and you can browse everything from the guides library.
Common questions
How is a commercial property loan different from a home loan?
Terms are shorter, commonly three to fifteen years rather than thirty. Deposits are larger, typically 20 to 35 per cent. Rates sit higher, and lenders assess the property's income and the tenant's quality alongside the borrower. Many commercial facilities also require periodic review, where the lender can reassess terms during the loan.
What deposit do I need for commercial property?
Usually 20 to 35 per cent of the value, depending on the asset class and the strength of the lease. Standard office, retail and industrial in metropolitan areas attract the best terms. Specialised property such as service stations, childcare or hospitality is treated more conservatively and can require considerably more.
Does the tenant affect what I can borrow?
Substantially. A long lease to a strong national tenant supports higher borrowing and better pricing because the income is more certain. A short lease, an unknown tenant or a vacant property shifts the assessment onto the borrower's other income and typically reduces both the amount and the term available.
What is an interest cover ratio?
It measures whether the property's net income covers the loan interest, and it is the main serviceability test in commercial lending. Lenders commonly want net income to be somewhere around 1.5 to 2 times the interest cost. If the ratio is too thin, the answer is usually a smaller loan rather than a declined one.
Sources and further reading
- ASIC Moneysmart, borrowing and credit. Explains secured lending, comparison of costs and the value of reading terms before signing, which applies to business and investment borrowing as well as consumer loans.
- Australian Prudential Regulation Authority, quarterly property exposures statistics. Publishes the value of authorised deposit-taking institution lending to commercial property, showing the scale and mix of the market.
- Australian Taxation Office, GST and property. Sets out when GST applies to the sale and lease of commercial premises and how the margin scheme and going-concern rules can change the position.
- Reserve Bank of Australia, financial stability material. Provides context on commercial property lending conditions, capitalisation rates and the role of banks and non-bank lenders.
General information only. This guide explains how home loans work in Australia in broad terms. It is not financial or credit advice and does not take account of your objectives, situation or needs. Seek Mortgages is an independent publication, not a mortgage broker, lender or financial adviser, and we do not arrange loans. Rates, caps and eligibility rules change often, so always confirm the current detail with the relevant provider or regulator, and consider getting advice from a licensed professional before you act.
More plain-English explainers
Related guides from Seek Mortgages, each one general information that is dated and backed by cited sources.
Prime home loans explained
What lenders mean by a prime borrower, how serviceability buffers work, and why a strong file can unlock sharper rates and cashback offers.
Loan typesLow doc loans, explained for the self-employed
How alternative income verification works when you run your own business, what documents lenders accept, and the trade-offs to weigh up.
Loan typesPrivate mortgages and non-bank lending
When short-term private funding is used, how bridging and caveat loans differ from a bank mortgage, and the costs that come with speed.
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