What deposit do you need for a commercial property loan?

Office, retail and industrial property in metro areas with a good lease commonly attract 70 to 75 per cent LVR at banks, with some going to 80 per cent for strong borrowers or owner-occupiers. Specialised assets such as childcare centres, hotels, service stations and medical premises sit at 60 to 70 per cent. Regional and vacant property is lower again. Whatever the LVR, the rest is your deposit. On a $1,500,000 warehouse at 70 per cent LVR, the deposit is $450,000 before costs.

Stamp duty on commercial property is charged at the same rates as residential in most states and is not concessional, so on $1,500,000 it can exceed $70,000 depending on the state. Add legal fees, a valuation the lender orders and you pay for, lender establishment fees that are often a percentage of the loan on commercial facilities, and GST of 10 per cent if the sale is not a going concern. A realistic all-in figure for a $1,500,000 purchase at 70 per cent LVR is $550,000 to $700,000 of cash or equity.

Many first commercial purchases are funded by using equity in the family home. The lender either takes the home as additional security for the commercial loan, allowing a higher effective LVR, or you refinance the home to release cash that becomes the deposit. Cross-securing the home with a commercial facility ties the two together and lenders will value both, so it is worth understanding the exit before you agree to it. A specialist will usually try to keep the home and the commercial property with separate loans where the numbers allow.

A business buying its own premises can sometimes borrow more, because the lender assesses the business's capacity to pay rather than relying on a third-party lease, and because owner-occupied commercial is treated as lower risk. Some lenders will go to 80 per cent for an established business with strong financials, and government-backed schemes for small business have at times lifted this further. Investors buying leased property are assessed on the lease and generally sit at 65 to 75 per cent.