Guide to Commercial Property Loans: What Melbourne Investors Need to Know

Commercial property loans are essential for business owners and investors looking to purchase commercial properties and expand their financial goals. These loans play a key role in unlocking opportunities for commercial property investments, whether it’s office buildings, retail spaces, or industrial units. 

However, navigating the complex loan process and eligibility criteria can be overwhelming. This is where mortgage brokers step in. Brokers can provide professional advice, helping you find tailored loan options and guide you through the commercial lending market with ease.

In this guide, we’ll explore everything you need to know about commercial property loans in Melbourne—from types and eligibility to tips for approval.

Understanding Commercial Property Loans

Commercial property loans are tailored finance options designed to help business owners and property investors purchase or invest in commercial properties such as office buildings, retail spaces, industrial units, or warehouses in Melbourne. 

These loans are widely used for commercial property investments, as Melbourne's strong economy and increasing demand for commercial spaces drive growth in the sector. 

According to recent data from CBRE, Melbourne’s industrial property sector saw rental growth of over 10% in 2023, while office vacancy rates have started to decline, signaling renewed investor confidence. 

This makes Melbourne a prime location for commercial property investments, offering strong rental certainty and long-term growth potential.

Key Differences Between Residential and Commercial Property Financing in Melbourne

• Purpose: Residential loans focus on purchasing homes, while commercial loans fund business premises or income-generating properties, such as Melbourne's bustling retail and office spaces.

• Loan Terms: Commercial loans in Melbourne often come with shorter loan terms of 5–15 years, compared to residential property loans, which typically extend up to 30 years.

• Interest Rates: Commercial property loans in Melbourne usually have variable interest rates, which can be higher than residential mortgages. This reflects the risks tied to Melbourne’s competitive commercial property market.

• Approval Process: For Melbourne borrowers, commercial lending approval considers property types, rental income, and the applicant's cash flow, unlike residential mortgages that mainly assess personal financial position.

• Deposit Requirements: Lenders in Melbourne often require a deposit of 30%–35% of the purchase price for commercial loans, which is significantly higher than the 10%–20% needed for residential properties.

Melbourne’s diverse property market and growing demand for commercial properties make these loans a critical financial solution for business activities and investment plans.

Loan Types Available for Melbourne Commercial Property Investors

Melbourne’s dynamic property market offers various loan options to suit the needs of commercial property investors. From traditional bank loans to specialised products, there’s a solution for every investment plan.

Traditional Bank Commercial Loans

Major banks in Melbourne, such as Commonwealth Bank (CBA) or National Australia Bank (NAB), provide commercial property loans with competitive interest rates and flexible loan terms. These loans typically require a larger deposit and detailed financial documentation, such as proof of income and business plans.

Non-Bank Lender Options

Non-bank lenders in Melbourne, such as Pepper Money or Liberty Financial,  cater to property investors needing free-thinking commercial lending options. These lenders often provide tailored solutions for borrowers with complex financial situations or bad credit history.

Government-Backed Commercial Property Financing

Government-backed programs, such as those supporting small businesses, offer low-rate loan options for eligible borrowers. These loans aim to boost commercial property investments and can come with lower application fees or valuation fees. 

Programs like the National Housing Finance and Investment Corporation (NHFIC) and the Small Business Loan Guarantee Scheme can support commercial property loans. However, qualification criteria for these programs can vary, so it’s always best to consult with a broker to determine your eligibility and find the right option for your needs.

Specialist Commercial Property Loan Products

Specialist loans, such as SMSF loans or lease doc loans, are designed for specific investment strategies. These products are ideal for Melbourne investors seeking rental certainty, flexible income verification, or financing for unique property types like industrial units or medical practices.

With a wide range of options, Melbourne commercial property investors can choose the ideal loan type to match their financial goals and property investment plans.

Qualifying for a Commercial Property Loan in Melbourne

Qualifying for a commercial property loan in Melbourne means meeting lender requirements and providing key documents. Lenders assess your finances, property type, and risks to determine eligibility.

1. Strong Credit History

Lenders review your credit file and credit history to assess your reliability as a borrower. Ensure your credit score is strong, but if you have a bad credit history, you may need to offer additional security or explore non-bank lending options.

Include:

• Credit report from an Australian credit reporting agency (e.g., Equifax or Experian)
• Documentation showing resolution of any past defaults or late payments

2. Proof of Income and Cash Flow

Lenders require evidence of stable income streams and a positive cash flow to ensure you can handle loan repayments and ongoing expenses. Include:

• Business income statements (if applicable)
• Rental income statements or lease agreements for existing commercial properties
• Personal tax returns (last two years)
• Profit and loss statements for your business activities
• Bank account statements showing consistent cash flow

3. Larger Deposit

A deposit of 30%-35% of the purchase price is usually required for Melbourne commercial property loans. Having a larger deposit improves your chances of accessing competitive interest rates. Prepare:

• Evidence of available savings or liquid assets
• Confirmation of gifted funds (if applicable)
• Sale agreements or documents from the liquidation of existing assets (if used for the deposit)

4. Commercial Property Valuation

Lenders require a professional valuation to determine the property’s market value and assess lending risks. This valuation is critical for establishing the loan-to-value ratio (LVR). Provide:

• Professional property valuation report by an approved valuer
• Supporting documentation for potential rental income, including market rental appraisals

5. Business Plan and Financial Documentation

For business owners or investors, a detailed business plan helps lenders understand how the property fits into your financial goals. This is especially important for business property loans or those linked to income-generating assets. Include:

• Comprehensive business plan detailing your commercial property goals and financial objectives
• Current financial statements, including balance sheets and profit/loss summaries
• Forecasted cash flow analysis for the property
• Rental certainty documents, such as tenant lease agreements or rental contracts

6. Legal and Supporting Documents

Lenders need various legal and supporting documents to ensure compliance with lending policies and Melbourne property regulations. These help assess the property type, risks, and potential for ongoing expenses. Include:

• Contract of sale or purchase agreement for the property
• Lease agreements for current or potential tenants (for income-generating properties)
• Applicable building codes, zoning permits, or planning approvals
• Proof of property insurance coverage
• Personal identification (e.g., passport, driver’s license)
• ABN (Australian Business Number) for businesses or trading businesses

By preparing these documents thoroughly and meeting the eligibility criteria, Melbourne commercial property investors can improve their chances of approval. 

Commercial Property Loan Costs and Fees

When applying for a commercial property loan in Melbourne, be prepared for several upfront and ongoing costs. Deposits typically range from 30%-35% of the purchase price, depending on the lender’s loan-to-value ratio (LVR).

Application fees range from $500 to $1,500, while property valuation fees can cost $1,000 to $3,000, depending on the property type. Legal fees for reviewing contracts and documents also add to upfront expenses.

Ongoing costs include monthly repayments based on the loan amount and higher property interest rates compared to residential mortgages. Some lenders charge annual account fees ($400-$700) or early repayment penalties.

Investors should also budget for property management, maintenance, and potential rental vacancies, which can affect cash flow. Planning for these costs helps Melbourne property investors stay financially secure.

Loan Application Process: Step-by-Step Guide

Applying for a commercial property loan in Melbourne can seem complex, but breaking it down into steps makes it manageable. Here’s a simple guide to walk you through the process:

1. Assess Your Financial Position: Evaluate your cash flow, business assets, and credit:  history to understand your borrowing capacity. This will help you determine the loan amount and terms that suit your goals.
2. Choose the Right Loan Type: Research loan options, including traditional bank loans, non-bank lenders, and specialist products like SMSF loans. Select the loan type that aligns with your commercial property goals.
3. Prepare Required Documents: Gather proof of income, tax returns, financial statements, property valuation, and any legal documents like lease agreements. Proper documentation ensures a smoother loan process.
4. Work with a Mortgage Broker: Engage a broker to compare lenders, loan products, and property interest rates. Brokers can match you with lenders who fit your needs and streamline the application process.
5. Submit Your Application: Complete the loan application form and submit it to your chosen lender along with all required documents. Be prepared to pay the application fee and provide additional information if requested.
6. Lender Assessment and Approval: The lender will evaluate your credit file, income details, and property valuation. If approved, they’ll provide the loan offer outlining terms, rates, and repayment details.
7. Sign the Loan Agreement: Carefully review the loan terms and conditions before signing. Once finalised, the funds will be released to complete your commercial property purchase.

Following these steps ensures a more efficient loan process and helps you secure the right loan for your commercial property investment.

Tips to Boost Chances for Commercial Property Loan Approval

Getting approval for a commercial property loan in Melbourne requires preparation and strategy. Follow these practical tips to strengthen your application and increase your chances of success:

Improve Your Credit History

Pay off outstanding debts and resolve credit file issues to show lenders you’re financially responsible. A strong credit history helps you access better loan terms.

Provide a Larger Deposit

A deposit of 30%-35% of the purchase price shows commitment and reduces the lender’s risk. A larger deposit can also unlock lower property interest rates.

Organise Your Financial Documents

Prepare proof of income, tax returns, cash flow statements, and property valuations. Clear, organised documents speed up the loan process and improve lender confidence.

Choose the Right Loan Type

Select a loan product that fits your commercial property goals, such as SMSF loans or lease doc loans. Tailored loan options align better with your investment needs.

Work with a Mortgage Broker

A broker can match you with lenders offering competitive interest rates and flexible loan terms. They can also guide you through Melbourne’s complex lending policies.

Focus on Rental Income Potential

Highlight the property’s rental certainty and potential tenants in your application. Lenders value properties that generate reliable income during rental periods.

By following these tips, Melbourne property investors can navigate the loan process more confidently and boost their approval odds.

Frequently Asked Questions

What is the difference between residential and commercial property loans?

Residential loans are for homes, while commercial loans fund properties like offices and warehouses. Commercial loans typically have higher interest rates and shorter terms.

What documents are needed for a commercial loan application?

You’ll need proof of income, a business plan, valuation fees, and financial statements. Lenders may also ask for lease agreements.

How much deposit is required for a commercial property loan?

Most lenders require a deposit of 30%–35% of the purchase price, depending on the loan product.

Can I get a commercial loan with bad credit history?

Yes, but you may need to approach private lenders or offer additional security. Flexible loan terms may also apply.

What are the interest rates for commercial property loans?

Rates vary depending on the lender, loan type, and market conditions. Competitive interest rates start from around 5%.

Can I use an SMSF to buy commercial properties?

Yes, self-managed super funds can invest in commercial property under specific legal and tax guidelines.

Are commercial property loans tax-deductible?

Interest on commercial loans is generally tax-deductible, but you should seek professional tax advice.

Final Thoughts

Commercial property loans are a key step for Melbourne investors looking to grow their portfolios or achieve business goals. By understanding loan options, eligibility requirements, and costs, you can make informed decisions that align with your financial position and property ambitions.

Ready to take the next step? Contact LM Connect today at 0423 713 362 and get a free personalised consultation with our expert brokers, and start growing your property investment portfolio!