What to Know About Commercial Loan Terms in Australia

Understanding Commercial Loan Terms for Your Business

When applying for a commercial loan on the Mornington Peninsula, understanding the various terms and structures available can significantly impact your business's financial future. Commercial finance encompasses a broad range of lending products designed to help businesses achieve their goals, whether you're buying commercial property, expanding business operations, or upgrading existing equipment.

Types of Commercial Loan Structures

Commercial lenders offer several loan structure options to suit different business needs:

Secured Commercial Loan
A secured Commercial Loan uses collateral to reduce the lender's risk. This might include commercial property, equipment, or other business assets. The interest rate is typically lower due to the reduced risk for the lender.

Unsecured Commercial Loan
For businesses without suitable collateral or those preferring not to secure assets, unsecured options are available. While the loan amount may be smaller and interest rates higher, these loans offer more flexibility.

Progressive Drawdown
Ideal for construction projects or phased purchases, progressive drawdown allows you to access funds as needed rather than taking the full loan amount upfront.

Revolving Line of Credit
This flexible arrangement provides access to funds up to an approved limit, with interest only charged on amounts used. It's particularly useful for managing cash flow or seasonal business variations.

Interest Rate Options

Commercial loans typically offer two main interest rate structures:

• Fixed Interest Rate: Provides certainty with consistent repayments throughout the fixed period
• Variable Interest Rate: May start lower but can fluctuate with market conditions

Many lenders also offer split rate options, combining both fixed and variable components within the same facility.

Commercial Property Finance Considerations

When buying commercial property or looking to buy commercial land, specific terms apply:

Loan to Value Ratio (LVR)
Most commercial property finance requires a deposit of 20-40% of the property value. The exact requirement depends on the property type, location, and your business's financial position.

Repayment Terms
Commercial property loans often feature longer repayment periods, typically 15-30 years, though some lenders offer flexible repayment options including interest-only periods.

Equipment Finance Terms

For businesses buying new equipment or upgrading existing equipment, equipment finance offers specific advantages:

• Loan amounts typically match the equipment value
• Repayment terms align with the equipment's useful life
• The equipment itself often serves as security
• Potential tax benefits through depreciation

Key Features to Consider

Flexible Loan Terms
Look for lenders offering flexible loan terms that can adapt to your business cycle. This might include seasonal payment variations or the ability to make additional repayments without penalty.

Redraw Facilities
Many commercial loans include redraw options, allowing you to access additional funds from repayments made above the minimum requirement.

Application Process
A streamlined application process can reduce the time between application and approval. However, commercial loans typically require more documentation than residential loans, including:

1. Financial statements
2. Business plans
3. Cash flow projections
4. Asset and liability statements
5. Tax returns

Industrial Property Considerations

When looking to buy an industrial property, additional factors influence loan terms:

• Zoning restrictions may affect lending criteria
• Environmental assessments might be required
• Specialised property types may have limited lender options
• Location and accessibility can impact loan conditions

Working with Commercial Finance Specialists

Accessing commercial loan options from banks and lenders across Australia can be complex. Each lender has different criteria, rates, and terms. Professional mortgage brokers specialising in commercial loans can help you:

• Compare options across multiple lenders
• Structure loans to match your business needs
• Negotiate terms and conditions
• Manage the application process

Making the Right Choice

Choose commercial finance terms that align with your business cash flow, growth plans, and risk tolerance. Consider factors such as:

• Your ability to service different repayment structures
• The impact of interest rate changes on variable loans
• Whether you need flexibility for early repayment
• The importance of maintaining working capital

For Mornington Peninsula businesses, having local expertise can make a significant difference in securing appropriate commercial finance. Professional brokers understand regional business conditions and maintain relationships with lenders familiar with the local market.

Whether you're expanding business operations, purchasing commercial property, or investing in new equipment, understanding commercial loan terms empowers you to make informed decisions that support your business objectives.

Call one of our team at Bayland Finance or book an appointment at a time that works for you to discuss your commercial finance needs.