Buying a cafe, restaurant, or pub involves two separate transactions that need to be funded at the same time.
You acquire the business itself, which includes stock, equipment, fit-out, goodwill, and the existing lease or licence to operate. You also acquire the commercial property if you're purchasing the freehold title, or you negotiate a new lease if you're acquiring the business only. Most lenders treat these as distinct financing requirements, and understanding how they structure the loan determines whether your offer proceeds or stalls before settlement.
How Lenders Separate Business Assets from Property Value
A commercial property loan is secured against the building and land. Lenders value the real estate independently of what operates inside it, which means the cafe fit-out, espresso machines, or liquor licence do not increase the property valuation used to calculate your loan-to-value ratio. If you're paying $1.2 million for a hospitality venue where the property component is valued at $900,000 and the business component at $300,000, your lender will typically only use the $900,000 figure to determine how much they will lend against the real estate.
This creates a funding gap. If the lender offers 70% LVR on commercial property, you receive $630,000 against the property component. The remaining $570,000 must come from your deposit, or be funded separately through unsecured commercial finance or a business loan secured against other assets. In practice, you may need to bring 40% to 50% of the total purchase price in cash or equity, even though the advertised LVR is 70%.
What Mill Park Buyers Should Expect from the Valuation Process
Mill Park sits within the City of Whittlesea, where hospitality venues range from small cafes near Westfield Plenty Valley to standalone restaurants along Plenty Road and licensed venues in suburban retail precincts. The local market includes a mix of freehold properties, strata title units in commercial complexes, and leasehold businesses operating within larger shopping centres.
Commercial property valuations in this area reflect rental yields, lease terms, tenant covenants, and recent comparable sales. A valuer assesses the property as if it were vacant, then considers the income it generates under the current lease or business operation. If you're buying a venue with a short remaining lease term or no lease in place because you're both landlord and operator, the valuation may come in lower than expected. Lenders also apply a higher discount to hospitality properties than to office or industrial assets, because they are considered special-use properties with a smaller pool of potential buyers.
Consider a buyer acquiring a licensed restaurant on a main road near the Mill Park Town Centre. The sale price is $1.4 million, comprising $950,000 for the property and $450,000 for the business. The lender's valuer assesses the property at $880,000, noting that comparable sales in the area reflect similar discounts for hospitality-specific fit-outs and limited alternative use without significant refurbishment. At 65% LVR, the buyer receives $572,000 against the property. The remaining $828,000 must be funded through a deposit, a separate business loan, or equity from another property. The buyer in this scenario needed to provide $600,000 in cash and borrowed an additional $228,000 through a secured business loan using residential property as collateral.
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How Interest Rates and Loan Structure Differ from Residential Finance
Commercial interest rates are priced as a margin over the bank bill swap rate or a reference rate set by the lender. Variable interest rates on commercial property loans typically sit 1% to 2% higher than standard residential variable rates, reflecting the increased risk lenders assign to business-related property. Fixed interest rate options are available, but terms are usually limited to one to five years, and break costs apply if you repay early.
Loan structures also differ. Most commercial property finance is written as interest-only for a period of one to five years, with principal and interest repayments required after that. Some lenders offer a revolving line of credit against the property, allowing you to redraw funds as your business grows or you acquire additional venues. Others provide limited redraw or no redraw at all, depending on whether the loan is structured as a term loan or a reducing facility.
Repayment terms are shorter than residential loans. While a home loan might run for 30 years, commercial property loans are often structured over 15 to 25 years, with a review clause every three to five years. At each review, the lender reassesses the property value, your business performance, and your ability to service the debt. If the business is underperforming or the property has declined in value, the lender may reduce the loan amount, increase the interest rate, or require additional security.
What Documents and Financial Evidence You Need to Provide
Lenders assess both your capacity to service the loan and the commercial viability of the business you're acquiring. If you're buying an existing venue, you will need to provide the business financial statements for the past two to three years, including profit and loss statements, balance sheets, and tax returns. The lender will review the vendor's financials to understand the income the business generates, but they will also assess your own financial position and business experience.
If you're an established operator buying a second or third venue, lenders typically require your existing business financials, personal tax returns, and details of any other debts or obligations. If you're a first-time hospitality buyer, expect additional scrutiny. Some lenders will request a business plan, cash flow projections, and evidence of your experience in the industry, such as employment history or qualifications in hospitality management.
You will also need to provide a copy of the contract of sale, the lease agreement if the property is leasehold, the liquor licence transfer documentation, and a list of chattels and equipment included in the sale. The lender will review the lease term, rent review clauses, and any outgoings or make-good obligations that could affect your cash flow. If the lease has less than five years remaining and no option to renew, some lenders will decline the application or reduce the LVR.
How Settlement Timing and Deposit Requirements Are Structured
Commercial property transactions typically allow 60 to 90 days for settlement, longer than the standard 30 to 60 days common in residential property. This extended period gives you time to finalise finance, transfer the liquor licence, negotiate lease terms if applicable, and complete due diligence on the business.
Deposit requirements vary depending on whether you're buying the property, the business, or both. If you're acquiring the freehold property and the business, the vendor may require a 10% deposit on exchange, with the balance due at settlement. This deposit is usually non-refundable if you fail to settle, so it is essential that your finance is formally approved before you exchange contracts. Some buyers use a commercial bridging finance facility to cover the deposit if they are waiting on the sale of another asset, but this adds cost and complexity.
If you're buying the business only and entering into a new lease, the deposit structure depends on the vendor's terms. Some business sales require a deposit of 10% to 20% of the business purchase price, held in trust until settlement. Others require payment in stages, particularly if stock levels or equipment are verified closer to settlement. You will also need to budget for lease security deposits, typically equivalent to three to six months' rent, which are payable to the landlord on execution of the lease.
How Security and Collateral Are Assessed for Hospitality Purchases
Lenders rarely lend against the business component of a hospitality purchase without additional security. The equipment, fit-out, and stock have limited resale value, and goodwill evaporates if the business closes. If you're borrowing to fund the business component, the lender will typically require a registered mortgage over the commercial property, a second mortgage over residential property you own, or a general security agreement over all business assets.
Some buyers structure the purchase using a combination of a commercial property loan secured against the venue itself, and an unsecured commercial loan or business overdraft to cover the business component and working capital. Unsecured facilities attract higher interest rates and shorter terms, but they allow you to proceed without tying up additional property. Other buyers use commercial SMSF loans if they are purchasing the property through a self-managed superannuation fund, though this restricts how the property can be used and requires a separate lease agreement between the fund and the operating entity.
What Happens If the Business Is Underperforming or the Lease Is Short
If the business you're acquiring has declining revenue or inconsistent profit margins, lenders will either reduce the loan amount or decline the application. They assess serviceability based on the income the business generates, not the price you're paying for it. A venue with strong historical performance but a recent downturn in trade may still be financeable, but you will need to demonstrate a clear plan for stabilising revenue and improving margins.
Lease term is another critical factor. If the remaining lease is less than the loan term, most lenders will not proceed unless you can secure a lease extension or option to renew. A venue with three years remaining on the lease and no renewal option is considered high risk, because you may be forced to relocate or negotiate a new lease under less favourable terms before the loan is repaid. In practice, lenders prefer leases with at least five years remaining, plus one or more five-year options.
Working with a commercial finance and mortgage broker who understands hospitality transactions helps you identify lenders who are active in this space and structure the application to address the specific risks lenders focus on. Not all lenders offer commercial property finance for hospitality venues, and those who do apply different criteria depending on whether the property is freehold, strata title, or leasehold, and whether you're an experienced operator or a first-time buyer.
Call one of our team or book an appointment at a time that works for you to discuss how your purchase should be structured and what deposit you will need to proceed.
Frequently Asked Questions
How much deposit do I need to buy a hospitality venue in Mill Park?
Most lenders require 30% to 50% of the total purchase price, because they only lend against the property component, not the business, equipment, or goodwill. The exact amount depends on the property valuation and whether you're buying freehold or leasehold.
What is the difference between commercial property finance and a business loan for hospitality?
Commercial property finance is secured against the land and building, while a business loan covers equipment, stock, and goodwill. Most hospitality purchases require both, because lenders value the property separately from the business operating inside it.
Can I use a residential property as security for a commercial hospitality purchase?
Yes, many buyers use equity in residential property to secure the business component or increase their borrowing capacity. This is common when the commercial property valuation is lower than the purchase price or when funding working capital.
What happens if the lease term is shorter than the loan term?
Most lenders will not approve a loan if the lease expires before the loan is repaid, unless you can secure a lease extension or option to renew. A lease with less than five years remaining and no renewal option is considered high risk.
How do lenders assess the business financial performance when I buy a hospitality venue?
Lenders review the vendor's profit and loss statements, tax returns, and cash flow for the past two to three years. They assess whether the business generates enough income to service the loan, and may request your own financials and business plan if you're a first-time operator.
