Understanding Commercial Loan Structuring
When buying commercial property or expanding your business operations in Hawthorn, the way you structure your commercial finance can have lasting implications for your cash flow, tax position, and financial flexibility. Commercial loan structuring involves arranging the terms, conditions, and features of your business property finance to align with your specific circumstances and objectives.
Unlike residential mortgages, commercial property loans offer considerably more flexibility in how they can be arranged. This flexibility allows business owners and property investors to tailor their loan structure to match their operational requirements, growth plans, and risk tolerance.
Key Components of Commercial Loan Structures
A well-structured commercial mortgage considers several critical elements:
Loan Amount and Commercial LVR
Lenders typically assess the loan amount based on the commercial property valuation and your borrowing capacity. The commercial LVR (loan-to-value ratio) for commercial property finance generally ranges from 60% to 80%, depending on the property type and your financial position. Understanding how much you can borrow is fundamental to structuring an appropriate facility.
Interest Rate Options
You'll need to decide between a variable interest rate, fixed interest rate, or a split arrangement. Variable rates provide flexibility and often include features like redraw facilities, whilst fixed rates offer certainty over repayment amounts for a set period. Many businesses opt for a combination to balance stability with flexibility.
Repayment Structures
Commercial finance offers flexible repayment options including:
- Principal and interest repayments
- Interest-only periods
- Progressive drawdown arrangements for development projects
- Seasonal repayment schedules for businesses with fluctuating income
The right repayment structure depends on your cash flow patterns and business objectives.
Types of Commercial Loan Structures
Secured Commercial Loan vs Unsecured Commercial Loan
A secured commercial loan uses property or other assets as collateral, typically offering lower commercial interest rates and higher loan amounts. This structure suits businesses buying commercial land, purchasing an office building loan, or acquiring retail property finance facilities.
An unsecured commercial loan doesn't require property security but usually comes with higher interest rates and stricter eligibility criteria. This option may suit established businesses with strong financials seeking funds for buying new equipment or upgrading existing equipment.
Revolving Line of Credit
This structure provides ongoing access to funds up to an approved limit, similar to a credit card but with commercial interest rates. It's particularly useful for managing working capital, purchasing inventory, or covering short-term operational expenses.
Progressive Drawdown Facilities
For commercial construction loans or commercial development finance, progressive drawdown allows you to access funds in stages as the project advances. This structure means you only pay interest on the amount drawn down, reducing holding costs during the development phase.
Ready to chat to one of our team?
Book a chat with a Mortgage Broker at Traj Finance today.
Specialist Commercial Loan Structures
Commercial Bridging Finance
This short-term structure provides quick access to funds whilst you arrange permanent financing or wait for another transaction to settle. Commercial bridging finance is valuable when purchasing commercial property at auction or when timing between buying and selling doesn't align.
Pre-settlement Finance
Similar to bridging finance, pre-settlement finance helps businesses secure funds before formal settlement occurs. This can be crucial when you need to act quickly on a commercial property investment opportunity.
Mezzanine Financing
This hybrid structure sits between senior debt and equity, often used in commercial real estate financing for larger projects. Mezzanine financing can increase your total available funds when traditional lenders won't provide the full amount required.
Structuring for Different Property Types
The optimal loan structure varies depending on the commercial property type:
Industrial Property Loan
Warehouse financing and industrial property loans often feature longer terms and may include provisions for modifications or expansions. These structures typically account for the specialist nature of industrial assets.
Retail Property Finance
Retail property finance structures need to consider tenant arrangements, lease terms, and rental income streams. Lenders assess these factors when determining loan terms and conditions.
Strata Title Commercial
When you buy an industrial property or commercial unit within a strata scheme, the loan structure must account for body corporate fees, shared facilities, and potential special levies.
Structuring for Business Purposes
Your commercial finance structure should reflect your business objectives:
Land Acquisition
When securing finance to buy commercial land, structures often include provisions for future development or construction phases.
Expanding Business
Businesses looking at expanding operations may require flexible loan terms that accommodate growth, including options for additional drawdowns or facility increases.
Equipment and Asset Finance
Whilst separate from property finance, coordinating your equipment finance and asset finance structures with your commercial property loan can optimise your overall financial position.
Working with a Commercial Finance & Mortgage Broker
A knowledgeable commercial Finance & Mortgage Broker can access commercial loan options from banks and lenders across Australia, helping you compare structures and terms. This access is particularly valuable in the Hawthorn market, where property values and business dynamics require tailored solutions.
At Traj Finance, our business loans expertise extends to comprehensive commercial loans structuring. We work with you to understand your objectives and recommend structures that support your long-term success.
Commercial Refinance Opportunities
As your business evolves or market conditions change, commercial refinance can provide opportunities to restructure existing facilities. This might involve accessing equity for expansion, securing better interest rates, or consolidating multiple facilities into a more manageable structure.
Regularly reviewing your commercial property finance arrangements ensures your loan structure continues to serve your business effectively. Consider a loan health check to assess whether your current structure remains appropriate.
The right commercial loan structure combines appropriate loan terms, suitable interest rate arrangements, adequate flexibility, and alignment with your business strategy. Whether you're buying commercial property for the first time or refinancing existing facilities, professional guidance can help you structure finance that supports your objectives while managing risk effectively.
Call one of our team or book an appointment at a time that works for you to discuss how we can structure commercial finance solutions tailored to your Hawthorn business needs.
