Commercial Property Finance
Whether it is a warehouse, a retail shop front or an office, I’ll tell you how to structure the deal and give you the rundown on what it will cost.
Let’s start with some of the basics.
Here are just a few of the different types of Commercial Property:
- Retail Shops
- Industrial Sheds
- Freehold Motel / Hotels
- Block of flats (more than 4)
Basically, any type of property that is not residential could be described as Commercial.
For many first time borrowers, financing a commercial property can be confusing due to the different points of view taken by banks and non-banks.
Unlike residential properties, commercial properties have many variables that make them risky to lend against. For example, borrowing money to buy a commercial property that has a global company as its tenant is far different from one that has ‘Shirleys hairdressing’ as a tenant. (No offence Shirley!)
The type of tenant is not the only risk. The property itself will also be under scrutiny when you are borrowing to buy it. Retail shop-fronts in high traffic areas might fall under the category of less risky and this type of property will most likely attract a higher level of security value. This is because there are many people that might like to buy this type of property as an investment. Hence it can be sold easily by the bank in the event that you default on your loan.
Conversely, a wholesale nursery is a very special property. It can usually only be used for one purpose unless a buyer wants to spend quite a bit of money making substantial changes to the property. For these reasons, you might find that a nursery falls under the banner of ’specialised security’.
This usually means a few things. Firstly that many of the non-banks or securitised lenders won’t finance it. Their own policy and trust deeds will have a stipulation that they cannot lend against specialised security. Second, in the case of the remaining banks and financiers, they will reduce the amount they lend against this property. So, where they may give you up to 75% of the purchase price as a loan for the retail shop, an amount of say 55% might be all thats available for this type of property.
Last of all, you might also be charged more for loans against this property due to the lender believing that it represents a higher risk for them to provide money against. In fact this is a double whammy. You have to provide more of your own capital to buy the property and when you do, you are charged more for the loan.
On the next page you will learn a basic list of commercial properties and how much deposit you need to buy them.