How long is a commercial property loan term?

Commercial lenders separate the facility term, which is how long the loan is committed for, from the amortisation period, which is how repayments are calculated. A loan might amortise over 20 years but have a five year facility term, at the end of which the lender can renew, reprice or require repayment. Residential-style commercial products at the smaller end remove this distinction and simply run for 25 or 30 years. Understand which you are being offered, because a five year term with a balloon is a very different obligation from a 25 year loan.

Lease length is the biggest factor on investment property: lenders like the loan term, or at least the next review, to sit inside the lease including options. Property type matters, with specialised assets getting shorter terms. Borrower type matters, with owner-occupied loans to established businesses often getting the longest terms. Loan size matters, with loans under about $2,000,000 more likely to be offered on set and forget residential-style terms and larger facilities more likely to carry reviews and covenants.

Interest only is widely available on commercial property for up to five years, and some lenders will extend on application. Investors use it for cash flow and tax reasons; owner-occupiers use it during the early years of a business. The loan still has to be serviceable on a principal and interest basis over the remaining term, and lenders assess it that way.

Low doc commercial loans, private lending and bridging finance run for one to three years by design. They are priced for the short term and are meant to be refinanced into a bank facility once the borrower has full financials, a lease in place or a leased-up building. Going in with the exit already planned is what separates a good short-term loan from an expensive trap.