Yes, a commercial property loan for business premises can help you buy your own medical suite, allied health clinic, workshop or industrial unit. Lenders typically lend around 70% to 80% of the property’s value to owner-occupiers, which usually means a deposit of 20% to 35% plus costs, and they look closely at what your business earns.
How does a commercial property loan for business premises work?
It is a loan secured by commercial property that your own business will occupy. Lenders call it an owner-occupier commercial loan. Unlike a loan for an investment property, the lender looks mainly at whether your business can afford the repayments, because you, not a tenant, will be using the premises.
Why buy your own premises instead of renting?
If your business is established and you pay rent every month, buying the premises can be worth looking at. Your loan repayments take the place of rent, you build equity in the property, and you have more control over the space, the fit-out and your long-term costs.
It is not right for every business. You take on the costs and risks of owning property, and the deposit and purchase costs are cash that could otherwise go back into the business. The right answer depends on your business, your plans and your numbers.
What types of premises can you buy?
Owner-occupied business premises can include medical suites and consulting rooms, allied health and dental clinics, workshops, warehouses, industrial units, offices and shopfronts. Whether you are looking at a clinic in the Hills District or an industrial unit in North West Sydney, the process is similar.
Lenders treat property types differently. Industrial property is often the simplest to finance. Specialised property such as medical premises can be assessed differently, and some lenders have their own policies for it. The property has to work as security for the loan as well as suit your business.
How much deposit do you need?
Most commercial property loans need a deposit of around 20% to 35%, which reflects a loan of roughly 65% to 80% of the property’s value. Owner-occupiers buying well-located industrial property can sometimes reach the top of that range. Offices, retail and specialised premises often need more.
The loan is based on the lender’s valuation, not your contract price. On a $1,000,000 property, an 80% loan means a $200,000 contribution and a 70% loan means $300,000, before costs.
Some lenders also have special policies for certain professions, such as doctors, dentists and vets, which can allow higher borrowing. The rules and conditions vary, so ask early.
How do lenders assess an owner-occupier commercial loan?
Your business. Lenders usually ask for recent financial statements or tax returns, often covering two years, and look at your profit, cash flow and existing debts.
The rent you will stop paying. Because your business will no longer pay rent to a landlord, lenders may take that saving into account when they work out whether you can afford the repayments.
The property. The lender arranges an independent valuation and considers the property type, location, size, zoning and whether the permitted use suits your business.
You and your structure. Lenders consider whether the property is held personally, in a company or trust, or in an SMSF, and may ask the owners or directors to guarantee the loan.
There is no single commercial lending policy across the market. Each lender sets its own rules on maximum LVR, loan size, property types, locations and business financials, which is why the same purchase can get very different answers from different lenders.
Should you buy personally, through a company or trust, or through your SMSF?
Many business owners hold premises in a separate entity and lease them to the business at market rent. Others buy through a self-managed super fund, which can buy business premises and lease them back to the business, but has strict rules and usually a lower loan amount. The best structure depends on your tax position, your plans and your family, so speak to your accountant and solicitor before you sign a contract.
What costs come on top of the deposit?
Budget for stamp duty, legal and conveyancing fees, valuation and lender fees, building, pest or environmental checks where relevant, and any fit-out. First home buyer stamp duty concessions generally apply to residential property, not commercial premises. GST may also apply to the purchase price, depending on the property and the sale, so ask your accountant. For current NSW stamp duty rates, see Revenue NSW.
A $1,000,000 purchase with a 70% loan can need well over $300,000 in cash by settlement once the deposit and costs are added, so work out the full figure before you make an offer.
What if your business is newer or your financials are limited?
Lenders prefer to see a trading history, often two years of financials. If your business is newer, some lenders offer alternative documentation options, but these often come with a lower loan amount or a higher rate. Tell us early, because it changes which lenders are worth approaching.
A worked example (illustrative only)
This example is for illustration only. Actual outcomes depend on the lender, the property and your business.
An allied health business owner pays $60,000 a year in rent and wants to buy their clinic suite for $1,000,000. The lender’s valuation comes back at $950,000, and the lender will lend 75% of the valuation.
The loan is $712,500, which is 75% of $950,000, so the owner must fund the remaining $287,500 of the price, plus stamp duty, legal and other costs. If the lender had lent 75% of the $1,000,000 price, the loan would have been $750,000, so the valuation difference matters.
The lender also looks at whether the practice’s profit and cash flow can support the repayments, and may take into account that the business will no longer pay $60,000 a year in rent.
Common mistakes to avoid
Signing a contract before knowing the lender’s valuation and LVR. The loan is based on the valuation, not the price.
Underestimating the total cash needed. Stamp duty, legal fees and fit-out add up quickly.
Not checking zoning and permitted use. A clinic or workshop needs the right zoning and approvals.
Mixing personal and business finances. Clear financials make the assessment easier.
Choosing a structure without advice. Ask your accountant and solicitor first.
Approaching only one bank. Commercial lending policies vary a lot, so compare options.
Ready to take the next step?
Book a free strategy call with Rovo Finance. We will look at your business, the property you are considering and how you want to hold it, tell you what options are available and which lenders we can take you to, and explain how long the process will actually take. There is no cost and no obligation to proceed.