Commercial property: your questions answered

Yes. Commercial property lending, including owner-occupied, investment and SMSF purchases, is arranged through Lyft Financial, part of Lyft Capital. The same broker can coordinate your property and equipment finance.

Commercial lending is usually written to a lower loan-to-value ratio than residential, so expect to contribute more. Owner-occupied purchases commonly sit around 65% to 80% LVR depending on the property type and the strength of the business, meaning a deposit of roughly 20% to 35% plus costs. Specialised premises attract tighter LVRs than standard offices, warehouses or retail. Using equity in an existing property can reduce or replace the cash deposit.

It is possible where the property is genuine business real property and the arrangement complies with superannuation law, typically through a limited recourse borrowing arrangement. The fund borrows, a bare trust holds the asset, and the business pays market rent to the fund under a lease. Lenders apply conservative LVRs and want the fund to hold a liquidity buffer. This is an area where you need advice from your accountant and a qualified SMSF adviser before you commit.

Plan for six to twelve weeks from application to settlement in most cases. The steps that take time are the full financial assessment, a formal valuation of the property, legal documentation and any conditions the lender imposes before funding. Purchases with tight contract dates need the finance clause negotiated realistically at the outset. Refinances of an existing loan can be quicker where the property and the borrower are straightforward.

Yes. Interest-only periods of one to five years are common on commercial property loans, particularly for investors who want to maximise cash flow and deductions, and some lenders will extend them on review. During the interest-only period you pay only the interest, so repayments are lower but the principal does not reduce. Owner-occupiers usually move to principal-and-interest so the debt is paid down over the term. Lenders assess an interest-only loan on the higher principal-and-interest repayment that follows, so the business or lease income still needs to support it.

An owner-occupied commercial loan finances premises your own business will trade from, and lenders assess it largely on the strength of that business. An investment commercial loan finances a property leased to someone else, and lenders assess it on the lease income, the tenant and the lease term remaining. Owner-occupied loans often allow higher borrowing and can be structured through the trading entity, while investment loans lean on the quality of the lease. Both can include a residential-security top-up where more borrowing is needed.

Commercial property rates are usually a little higher than home loan rates and vary with the lender, the property type, the loan-to-value ratio and how the loan is documented. Full-doc loans with strong financials and a standard property attract the sharpest pricing; low-doc or lease-doc loans and specialised assets are priced higher. Loans can be fixed, variable or split, and interest-only periods are common for investors. Lyft Financial compares bank and non-bank lenders so you see the rate, fees and repayment side by side before you commit.

A lease-doc loan is assessed on the rental income from a commercial lease rather than on the borrower’s full financial statements. Lenders check that the rent covers the interest by an agreed margin and that the lease term, tenant and property are sound. It suits investors whose tax returns do not reflect their position, or who want a faster approval, and it usually comes with a lower maximum loan-to-value ratio and a slightly higher rate than a full-doc loan.

Often, yes. GST of 10 per cent generally applies to the sale of commercial property unless it is sold as a going concern with an existing lease in place, or the seller is not registered for GST. If you are registered, you can usually claim the GST back on your next BAS, but you need to fund it at settlement, and most lenders will not lend against the GST component. Stamp duty is calculated on the GST-inclusive price in most states. Confirm the treatment with your accountant before exchange, because it changes the deposit you need.

For a full-doc loan lenders typically ask for two years of business financials and tax returns, recent BAS, the contract of sale, any lease on the property, identification and details of your entity structure. Investors also provide the lease and rental history. Low-doc and lease-doc options reduce this to an accountant’s letter or the lease alone. Because commercial lenders look closely at the property itself, a valuation, the zoning and any environmental or heritage issues are also reviewed.

Yes. A self-managed super fund can borrow to buy commercial property using a limited recourse borrowing arrangement, and the property can be leased to your own business at market rent, which many owner-operators use to buy their premises inside super. Lenders generally finance up to about 65 to 75 per cent of the value, require the fund to hold a cash buffer, and expect the trust structure to be set up correctly before settlement. Advice from your accountant or financial adviser is required, and Lyft Financial works alongside them.

A self-managed super fund borrows through a limited recourse borrowing arrangement: the property is held in a separate bare trust for the fund, the fund pays the deposit and the loan repayments from its balance and contributions, and if the loan defaults the lender’s recourse is limited to that property, not the rest of the fund. The fund can lease the premises to your own business at a market rent, which many owner-operators use to buy their own premises inside super. The structure must be set up correctly before the contract is signed.

Lenders generally finance 65 to 75 per cent of a commercial property’s value for an SMSF, so the fund needs a deposit of 25 to 35 per cent plus purchase costs from its existing balance. Lenders also usually require the fund to keep a liquidity buffer of around 10 per cent of the property value after settlement and to show that rent and member contributions comfortably cover the repayments. Loan sizes commonly range from $200,000 to several million.

Yes. Commercial property, known as business real property, is the one type of property an SMSF can lease to a related party. The lease must be on arm’s-length commercial terms with market rent, paid on time, and documented, and the rent then flows into the fund as income taxed at concessional rates. This is the main reason business owners buy their premises through super. Residential property cannot be leased to members or relatives.

A smaller panel than for ordinary commercial lending. Several of the major banks have stepped back from SMSF lending, and the market is now served mainly by non-bank and specialist lenders, with a few banks remaining. Rates are a little higher than standard commercial loans and terms run up to 20 or 30 years. Lyft Financial works across this panel and knows each lender’s rules on property type, fund size and liquidity.

On top of the usual purchase costs, an SMSF borrowing needs a bare trust, sometimes called a holding trust, with its own trustee, which involves legal setup fees, and lenders charge establishment and legal review fees for the arrangement. A corporate trustee for the fund is usually required. Your accountant or SMSF adviser sets up the structure and advises on whether the purchase suits the fund; Lyft Financial arranges the finance to fit it.

Not with the borrowed funds. Under the limited recourse rules, borrowed money can be used to buy the property and to repair or maintain it, but not to improve it in a way that changes its character, and the property cannot be subdivided or developed while the loan is in place. Improvements can be funded from the fund’s own cash. This constraint is one reason the structure suits established premises rather than development sites.

The fund’s trust deed and the bare trust deed, the fund’s last two years of financial statements and tax returns, evidence of the fund’s cash balance and members’ contributions, the contract of sale, any lease on the property, and identification for the trustees. Lenders also review the fund’s investment strategy to confirm the property fits. Your accountant and Lyft Financial assemble the pack together.

Allow six to ten weeks. The bare trust needs to be established before exchange, the lender values the property and reviews the fund, and the trust and loan documents take longer than a standard purchase. Negotiating a longer settlement in the contract avoids pressure. Start with Lyft Financial and your accountant before you make an offer so the structure is ready.

Development finance funds the construction of a project, from a duplex or small townhouse site through to apartment and commercial builds. The lender approves a total facility based on the land value and the cost to build, and funds are drawn down progressively as construction reaches each stage, verified by a quantity surveyor. Interest is usually capitalised into the loan rather than paid monthly, and the loan is repaid at the end when the completed properties are sold or refinanced. Terms run from 6 to 36 months.

Senior lenders typically fund 65 to 75 per cent of total development cost, or 60 to 70 per cent of the end value of the completed project, whichever is lower, with the developer contributing the balance as equity, usually including the land. Stretch senior and mezzanine funding can lift the total to 80 to 90 per cent of cost at a higher rate. Private lenders will go further again for experienced developers. Lyft Financial models the capital stack and shows the blended cost of each option.

Banks usually require presales covering 100 per cent or more of the debt before construction starts, which suits larger projects with a marketing campaign. Non-bank and private lenders often require few or no presales, particularly for smaller projects, in exchange for a higher rate and a lower loan-to-cost ratio. For a duplex or townhouse project that will be sold on completion, a no-presale facility is common. Your broker matches the presale requirement to your project and timeline.

The builder submits a progress claim at each stage, an independent quantity surveyor inspects and certifies the work and the cost to complete, and the lender releases that stage’s funds to the builder, usually within a few days. The first drawdown often covers land or deposits, and a contingency is held in the facility for variations. Keeping the builder’s claims and the QS reports aligned is the key to smooth drawdowns, and your broker manages the process with the lender.

Senior debt is the first mortgage lender, funding the largest share at the lowest rate. Stretch senior is a single lender funding beyond the normal senior limit at a slightly higher blended rate. Mezzanine sits behind the senior lender as a second mortgage or a preferred equity position, funding the top slice at a much higher rate. Using stretch senior or mezzanine reduces the equity the developer needs to contribute. Your broker shows what each layer costs and how it affects the project’s return.

A development application approval or a clear path to it, a feasibility showing costs, end values and profit margin, a fixed-price building contract with a licensed builder, a valuation of the land and the completed project, a quantity surveyor’s initial report, evidence of the developer’s equity and experience, and the exit strategy for repaying the loan, whether sales or a refinance. Lenders usually look for a profit margin of at least 15 to 20 per cent on cost.

Four to eight weeks for most facilities, driven by the valuation, the quantity surveyor’s report and the lender’s review of the builder and the feasibility. Private lenders can be faster for smaller projects. Start the finance conversation as soon as the DA is lodged and the builder is engaged, so the facility is approved by the time construction is ready to begin.