Quick answer
Commercial property such as an office, shop, warehouse or factory can secure a business loan, usually through a first mortgage, a second mortgage behind your existing lender or a caveat loan. Lenders generally advance a lower share of value than against a house, and they look closely at property type, location, the lease and the tenant. Specialised buildings and property held in an SMSF are the main exceptions to watch.
Key points
- Lenders read commercial property through two lenses: what it would sell for empty, and what its lease earns
- Expect a lower maximum loan-to-value ratio than for residential security, and lower again for specialised buildings
- A lease to your own business helps, but the lender will judge it on the business's strength, not the lease alone
- Property owned by your SMSF generally can't be offered as security for a business loan
Owners who hold their own premises are in a strong position to borrow. A freehold warehouse, a strata office suite or a strip of shops can unlock far more than an unsecured lender would offer, and the house you live in stays out of it. But commercial property isn’t treated like a house. Two buildings with the same price tag can support very different loans, and the reasons often surprise people.
How does a lender look at a commercial building?
A residential lender mainly asks what the house would sell for. A commercial lender asks that too, then asks a second question: what does the building earn, and how secure is that income?
That’s why the valuation of a commercial property often comes with a capitalisation or yield analysis alongside sales comparisons. A building with a long lease to a reliable tenant is easier to sell and holds its value. The same building half empty, or let month to month, is riskier to lend against even if it would cost the same to build.
The questions a lender works through usually look like this:
| Question | What helps |
|---|---|
| What type of property is it? | Standard office, industrial and retail in established areas |
| Where is it? | Metro and major regional centres with active sales markets |
| Is it leased? | A written lease with a meaningful term left to run |
| Who is the tenant? | An established business with a good payment record |
| Is it specialised? | Buildings with many possible users rate better |
| Who owns it? | Ownership structure lenders can take security from easily |
| What’s already registered? | Equity left after any existing mortgage |
Which property types are easiest to borrow against?
Lenders sort commercial property into broad groups, and the group changes how much they’ll advance.
Mainstream. Light industrial units, warehouses, standard offices and shops in established areas. Plenty of potential buyers, so lenders are comfortable. A unit in an industrial estate in a capital city’s established ring is close to the ideal.
Small or unusual strata. Very small office or storage units, or units in tightly held complexes, can attract tighter limits because the pool of buyers is thin.
Specialised. Childcare centres, service stations, pubs, motels, medical centres and similar buildings designed for one use. Their value is closely tied to the business inside, so lenders often value them with the business in mind and advance a smaller share. Some lenders won’t take them at all.
Vacant or development sites. Commercially zoned land or empty buildings earn nothing, so expect conservative treatment. If that’s what you hold, our page on loans against vacant land goes into more detail.
When you are your own tenant
Many owners hold the premises in one entity, say a family trust, and lease them to the operating company. Lenders like a written lease at a market rent, because it makes the property easier to value and sell. But they’ll also recognise that if the business struggles, so does the rent, so the operating company’s financials end up being assessed anyway.
Practical points: have the lease in writing, keep the rent at market level, and make sure the payments actually go through the accounts. An informal arrangement with no rent paid for two years is hard for a valuer to put weight on.
The SMSF exception
If your premises are owned by your self-managed super fund, they generally can’t be used as security for a business loan. Super laws restrict a fund from giving a charge over its assets, apart from the limited recourse borrowing arrangement used to buy an asset in the first place. That catches out owners who see the building as “theirs”. If the SMSF owns it, the business needs another source of security. Our page on SMSF commercial property loans covers how fund borrowing works for the purchase itself.
Your options, from cheapest to fastest
Banks are usually the best value lender for commercial property security, particularly where the business is profitable and the building is mainstream. If your bank already holds a first mortgage, a straightforward increase may be the simplest route. Take a bank offer seriously when you fit.
When the bank declines, asks for more than you can give, or can’t meet your timeframe, these options are available:
- A non-bank first mortgage, refinancing the bank and releasing equity in one step. Often more flexible on documentation and property type.
- A second mortgage ranked after the current lender, whose loan stays untouched. Check whether your first mortgage requires consent for further security.
- A caveat loan when the need is brief and pressing and the exit is clear, such as an ATO debt or a business purchase settling next week.
Our own lender HomeSec Business Finance (homesec.com.au) accepts commercial and industrial property as security for business loans. Use the LVR calculator for a rough sense of how much equity is available.
Want to know how your building would be viewed? Send through the property details in our quick form.
Example: unlocking a warehouse
An illustrative case. A family trust owns a 900 square metre warehouse in an established western Sydney industrial area, leased at market rent to the family’s joinery business on a five-year lease. The property is valued at $2.4m with a $700k bank loan against it. The joinery needs $500k for a CNC machine and to fund a large fit-out contract, and the bank wants updated financials and three months to assess.
Equipment finance covers the CNC machine. For the remaining $260k, a non-bank lender offers a 12-month second mortgage behind the bank, valuing the warehouse on both its sale evidence and its lease. Because the trust is the property owner and the joinery company is the borrower, the trust signs as guarantor and mortgagor. The owners plan to roll the second mortgage into a bank increase once the contract has been paid.
Things that slow commercial property loans down
- Valuation turnaround. Commercial valuations take longer and cost more than residential ones.
- Ownership structures. Trust deeds, company searches and guarantees from each entity add paperwork.
- Missing leases. Lenders want the signed lease, any variations and evidence the rent is paid.
- Existing security. Your bank may hold a general security agreement or cross-security over other assets that needs consent or release.
- GST on a future sale. Not a loan issue as such, but if the exit plan is selling the building, the ATO’s going concern rules affect what you’ll net. Ask your accountant early.
Turning your premises into working capital
Freehold premises give a lender something solid to hold, and a well-chosen lender will price that in your favour. Knowing in advance which funders accept warehouses, strata offices or specialised buildings saves owners from paying for valuations that go nowhere.
Set aside about a minute for the enquiry. Asking is free of any credit check and leaves your file exactly as it was. The details stay with our team and aren’t fired off to a long list of funders. One of our people studies the property type, the lease and what you need the funds for, and then calls you to go through it. Please describe the building and the current debt accurately, because those two details decide which lenders will look at it, and getting them right means the first suggestion is the right one.
Frequently asked questions
How much can I borrow against commercial property?
It depends on the property type, location, lease and the lender. Commercial security usually supports a lower loan-to-value ratio than a house, and specialised properties lower again. Property-secured business loans typically range from $20k to $5m, subject to the valuation and your ability to repay.
Can I get a second mortgage behind my bank's commercial loan?
Often, yes. A second mortgage or caveat lender can lend behind an existing commercial first mortgage if there's enough equity. Some first mortgages restrict further security without consent, so check your existing loan terms before you apply.
Can I use a property owned by my SMSF as security for my business loan?
Generally not. Super laws stop a self-managed super fund from giving a charge over its assets, apart from the limited recourse arrangement used to buy an asset in the first place. Speak to your SMSF adviser before considering anything involving fund property.
Does a vacant commercial property still count as security?
Yes, but lenders value it more conservatively and may advance less, because an empty building earns nothing while it's being sold. A short-term caveat or second mortgage lender is more likely to lend against vacant commercial property than a bank.
Why does the lender care about my lease if I own the building?
Because if the lender ever had to sell, a building with a long lease to a solid tenant is worth more and sells faster. If your own business is the tenant, the lender looks at the business's strength to judge how secure that lease really is.