Commercial Property Finance in Australia: LVR, Rates and What Banks Actually Look At

TL;DR

Commercial property finance is nothing like a home loan. Expect lower gearing, usually 65 to 70% of the property value rather than 80 to 90%. The lender cares about the lease and the tenant before they care about you, because the rent is what repays the loan. You can often fix your debt to the length of the lease, which is why a rate move that hurts a residential borrower barely touches a commercial one. Banks are the cheapest option but the strictest; non-bank and private lenders fill the gaps for a higher rate. Get the finance piece right and it makes the deal. Get it wrong and a good property becomes a bad investment.

Commercial finance is a different animal

If your only experience is a residential mortgage, the first commercial loan is a shock. In residential, the bank lends against you, your income and a comparable-sales valuation, and happily goes to 80% or more. In commercial, the property has to stand on its own two feet. The bank is really asking one question: does the income from this asset comfortably repay this loan, even if something goes wrong? Everything below flows from that.

Expect a lower LVR

The loan-to-value ratio on commercial property is typically 65 to 70%, and can be lower for higher-risk assets, specialised buildings or short leases. That means more deposit than a residential buyer is used to. It is not the banks being difficult, it is them pricing the fact that commercial values move with income and can reprice faster in a downturn. Plan your equity around 30 to 35% plus costs, not 10 to 20%.

What the bank actually assesses

In rough order of what matters:

The lease comes first. How long is left on it (the WALE), how strong is the tenant (the covenant), what is the net rent, and are there options to renew. A long lease to a strong tenant is the single biggest thing that unlocks good finance. A short lease or a vacancy makes banks nervous and pushes the LVR down and the rate up.

The interest cover ratio is next. Banks want the net rent to cover the interest comfortably, often around 1.5 to 2 times. If the rent only just covers the repayments, expect a smaller loan.

The property and location follow. Asset class, building quality, and how easily it could be re-leased if the tenant left.

You come last, not first. Your income, assets and experience matter, but they support the deal rather than carry it. This is the mental flip residential investors have to make.

One more thing: the valuation. Banks lend against the lower of the purchase price and the bank valuation, so a soft valuation can quietly shrink your loan and blow up your deposit. Understanding value is a skill in itself, and it is closely tied to how you read the lease.

Rates, terms and fixing to the lease

Commercial rates sit above residential, because the risk is higher. Loan terms are also structured differently: you will often see shorter review periods, three to five years, sitting over a longer amortisation. The powerful part is that a commercial investor with a lease in place can usually fix their debt for most of the lease term. That is why a 0.25% cash rate move can flow straight through to a residential repayment yet barely touch a well-structured commercial investor. The lease is your known income, and the bank lets you lock a rate against it.

Bank vs non-bank vs private

Banks: the cheapest rates, the strictest criteria. Best for clean deals with strong leases and tenants.

Non-bank lenders: more flexible on lease length, tenant type or property, at a higher rate. Useful when a bank says no for a reason you can fix.

Private lenders: fast and expensive, for short-term plays where you are creating value quickly and refinancing out. A tool, not a home.

The art is matching the lender to the deal and the plan, not just chasing the lowest rate.

Costs to budget for

Beyond the deposit: a commercial valuation (dearer than residential), legal and contract review, technical due diligence, loan establishment and sometimes line fees, and stamp duty, which is often higher on commercial. Build these into your feasibility before you offer, not after.

Common mistakes

Assuming residential LVRs and getting caught short on deposit. Ignoring how much the lease drives your borrowing capacity. Not fixing debt to the lease term and then getting surprised by rates. Forgetting GST and outgoings in the numbers. Chasing the cheapest rate into a lender that will not settle the deal.

Where to go from here

Most people start with Cal’s Fortify Your Wealth series, a multi-part video series on the strategies he uses when the market shifts. There are also weekly videos on YouTube.

If you would rather talk it through, book a free intro call with the Investor Code team.

For the full framework, there is the Commercial Property Mastery online course.

Frequently asked questions

What LVR can you get on commercial property in Australia?

Usually 65 to 70% of the property value, sometimes lower for specialised buildings, short leases or higher-risk assets. That is well below the 80 to 90% common in residential, so plan for a deposit of roughly 30 to 35% plus costs.

What do banks look at for a commercial property loan?

The lease first (length, tenant strength, net rent, options), then the interest cover ratio (they want the rent to cover interest comfortably, often 1.5 to 2 times), then the property and location, and finally you. The rent repays the loan, so the income and the lease carry the deal.

Can you fix the interest rate on a commercial loan?

Yes. With a lease in place you can usually fix your debt for most of the lease term, which is why well-structured commercial property is far less sensitive to cash-rate moves than residential.

Should I use a bank or a non-bank lender?

Banks are cheapest but strictest and suit clean deals with strong leases. Non-bank lenders are more flexible on lease or tenant risk for a higher rate. Private lenders are fast and expensive for short-term, value-add plays. Match the lender to the deal.

What are the extra costs in commercial finance?

A commercial valuation, legal and contract review, technical due diligence, loan establishment and possible line fees, and stamp duty (often higher than residential). Put these in your feasibility before you make an offer.