A Lender’s Guide to Purchasing Commercial Property: 10 Things We See from the Other Side of the Deal

Most guides to buying commercial property are written by people who buy commercial property. This one is written from the other chair, the one where the deal either gets funded or it doesn’t.

We assess commercial acquisitions every week: warehouses in Western Sydney, childcare centres in regional Victoria, a workshop a panel beater has leased for eleven years and finally wants to own. Some settle in 24 hours. Others fall over three days before settlement, for reasons the buyer could have seen coming eight weeks earlier.

The difference is almost never the quality of the property. It’s what the buyer knew about how lenders think before they signed the contract.

Here are the ten things we’d tell any business owner before they make an offer.

1. Work out your true cash-to-complete before you shortlist anything

The most common mistake we see: a buyer calculates a 30% deposit, finds a property at that number, and exchanges. Then they discover they’re short by six figures at settlement.

Your deposit is not your cash requirement. Your cash requirement is this:

Deposit + stamp duty + GST (if applicable) + legals + valuation and lender fees + any shortfall between contract price and valuation.

On a $2.5M industrial purchase in NSW, stamp duty alone runs to roughly $120,000. Add legals, due diligence reports and lender costs, and there’s another $15,000 to $25,000 before you’ve turned a key.

The deposit percentage itself also moves more than people expect. LVR in commercial lending is set by how liquid the asset is in a forced sale, not by a rate card:

Those ranges describe the commercial market broadly. Secured Lending’s own ceiling is 70% LVR, and it applies across first and second mortgages and every security type.

The logic is simple, and worth internalising, because it explains almost every credit decision you’ll encounter. The more buyers there are for the property if we ever have to sell it, the more we’ll lend against it. A warehouse in Wetherill Park has a hundred buyers. A purpose-built abattoir has four.

“Buyers get attached to a number they’ve heard somewhere: ‘commercial is 70%’. Then they find a property that’s technically commercial but functionally specialised, and the LVR drops fifteen points. Work out your cash position against the worst likely LVR for the asset class you’re chasing, not the best.”

Gino Tabila, Associate Director, Secured Lending

2. Understand the GST position before you sign

This is the number one cash flow surprise in commercial property. Commercial sales generally attract GST. Residential doesn’t. It catches out first-time commercial buyers constantly, because the mechanics are genuinely counterintuitive.

There are three positions you might be in.

Plus GST. You pay the price plus 10% at settlement, then claim it back as an input tax credit in your next BAS. If you’re on quarterly BAS, that money can be tied up for up to four months. On a $3M purchase that’s $300,000 of working capital sitting with the ATO, and most banks will not fund the GST component.

GST-free going concern. If the property is sold with a lease in place and the transaction meets the going concern requirements, no GST applies at all. Both parties must be GST-registered, the supply must be agreed in writing to be a going concern, and the vendor must supply everything necessary and carry on the enterprise until settlement. This is a materially better cash flow outcome and it’s worth structuring for. It’s also worth getting right: if the ATO later disagrees the concession applied, the liability usually lands with the vendor, and most contracts contain a clause pushing it back to you.

Margin scheme. This affects the vendor’s GST calculation and whether you can claim a credit. Check what your contract says. If the margin scheme applies, you generally can’t claim an input tax credit at all.

Get your accountant across the GST clause before you exchange, not after. If you do end up funding GST at settlement, that’s a very common short-term bridging scenario. It’s exactly what a bridging facility exists for, and it unwinds the moment your BAS refund lands.

3. The valuation is the loan, not the price you agreed

Every commercial lender lends against the lower of purchase price or valuation. If you pay $2.4M for a property that values at $2.15M, that $250,000 gap comes out of your pocket, not ours.

This matters more in commercial than residential, because commercial valuations are built differently. A valuer capitalising an income stream is doing roughly this:

Net passing income ÷ market capitalisation rate = value

Which means three things can quietly cost you hundreds of thousands.

Passing rent above market. If the tenant pays $180,000 and market is $150,000, a valuer will often adopt something closer to market, or apply a discount for the over-renting. The vendor’s asking price is built on the $180,000. The valuation isn’t.

Short lease tail. A lease with 18 months to run gets a vacancy and re-letting allowance deducted. Options to renew are usually not counted as term, because the option belongs to the tenant, not to you.

Sentimental or strategic premium. Owner-occupiers routinely pay above valuation to secure the building next door, or the site their business has operated from for twenty years. That’s a legitimate commercial decision. Just fund it knowing the bank won’t.

Two practical points. Make sure the valuer sits on your lender’s panel, because an independent valuation you commission yourself is usually not transferable. And make sure the instructions are correct: “as is” versus “on completion” versus “in one line” produce different numbers on the same asset.

At Secured Lending we run an internal valuation team, so we can form a view on value in hours rather than waiting on external panel availability. On a time-critical deal, that difference alone is often the difference.

4. If the property is tenanted, we underwrite the lease before we underwrite the building

Buyers read the lease for the rent. Credit reads it for everything else. On a tenanted purchase the lease is the asset, and here’s what gets pulled apart:

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  Term remaining, and whether the tenant is likely to stay. A ten-year lease to a business that’s outgrown the premises is weaker than a three-year lease to a tenant with $2M of fit-out sunk into the floor.
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  Net or gross. Under a gross lease you wear outgoings: council rates, water, insurance, land tax, strata levies. That’s a real deduction from the yield you’ve been quoted. Confirm which one you’re buying.
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  Land tax recovery. In NSW, land tax generally cannot be passed to a tenant under a retail lease. Buyers who model their return assuming recovery are often out by five figures a year.
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  Security held. Bank guarantee or cash bond, and for how many months? Is it assignable to you at settlement, or does it need to be re-issued? Re-issuing requires the tenant’s cooperation, on a deadline, when they have no particular incentive to hurry.
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  Rent review mechanism. Fixed 3-4%, CPI, or market review? A market review clause in a softening sub-market is a downside risk, not an upside one.
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  Outstanding obligations. Unpaid rent, rent-free periods still running, incentives yet to be amortised, make-good disputes.

Ask for the lease, the tenancy schedule and the rent ledger early. If the agent is slow producing them, treat that as information.

5. If you’re the tenant, we underwrite your business, not just the building

Owner-occupier purchases are assessed on a completely different basis to investment purchases, and it works in your favour more often than buyers realise. We’re looking at your trading cash flow’s ability to carry the debt.

The key move most business owners forget: the rent you currently pay is an add-back. If your business pays $9,000 a month in rent and the new loan repayment is $11,500, the true incremental cost to the business is $2,500, not $11,500. Present it that way in your application, with the numbers laid out. A credit analyst who has to find that themselves may not.

What will be examined: last two years of financials and tax returns, current year interim figures, your ATO integrated client account, aged debtors and creditors, and any director-related loans.

On the ATO point, be upfront. A live tax debt or payment plan will surface on the portal and it will stop a bank deal cold. It does not automatically stop ours. ATO debt is something we fund around regularly. What damages a file is discovering it in week three.

6. Get the buying entity right before you exchange

This is the one that costs buyers the most money for the least reason.

Company, discretionary trust, unit trust, SMSF or personal name: each has different asset protection, land tax and CGT consequences, and they are not equivalent. But the reason to decide early is blunt. In most states, changing the purchaser named on the contract after exchange can be treated as a second dutiable transaction. You pay stamp duty twice. On a $3M property that’s a six-figure error caused by a five-minute conversation that didn’t happen.

Two structures are worth flagging specifically.

SMSF purchases. If you’re buying business premises through your super fund and leasing it back to your own business, the business real property exemption allows it. But the lease must be on genuine arm’s length commercial terms at market rent, and a limited recourse borrowing arrangement can only fund a single acquirable asset. SMSF lending is a narrower market with lower LVRs and longer lead times. Start earlier than you think you need to.

Trust structures. Have the deed, the ASIC extract and the trustee details ready to send. A missing or unstamped trust deed adds days at exactly the point you don’t have days.

7. Do our due diligence before we do

The deal-killers are almost always physical or legal. Every one of these has killed a settlement we’ve been involved in, and all of them were discoverable during the contract period.

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  Zoning and permitted use. The property must be lawfully usable for what you intend. A café operating for six years without the right consent is still an unapproved use. If the use isn’t lawful, the income isn’t secure, and the valuation collapses.
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  Contamination. Former service stations, panel shops, dry cleaners, mechanical workshops and older industrial land. A Phase 1 environmental assessment is inexpensive. A remediation order is not. Many mainstream lenders decline contaminated or potentially contaminated sites outright.
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  Building compliance. Occupation certificate, fire services, essential services maintenance, disability access, unapproved mezzanines or awnings. Unapproved structures reduce valuations and can trigger council orders you inherit.
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  Strata. Read the minutes and the sinking fund forecast. A pending special levy for concrete cancer or a façade rectification becomes your levy the day after settlement.
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  Title. Easements, rights of carriageway, caveats, heritage listings, encroachments. A right of carriageway through the middle of your loading dock is a truck-access problem forever.

Spending $5,000 on due diligence to avoid a $200,000 problem is the best return available in this entire process.

8. Negotiate the contract terms your finance can actually meet

Commercial contracts in Australia typically have no cooling-off period. At auction there is none at all. Once the hammer falls you are unconditionally bound, and a failed settlement risks your deposit and exposes you to the vendor’s losses on resale.

So the contract needs to be negotiated around your funding timeline, not the other way round.

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  Finance clause length. The 14 days that works for residential is thin for commercial. Commercial valuations take longer, credit is bespoke, and a single report can add a week. Push for 21 to 30 days where you can.
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  Settlement period. Standard is 42 days. If the vendor wants 21, know before you sign whether your lender can hit it.
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  Deposit funding. The 10% is due at exchange, and it’s cash. Most acquisition finance doesn’t fund it. Deposit bonds, a bank guarantee, or a short-term equity release against a property you already own are the usual answers, and all of them need arranging beforehand.
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  Due diligence clause. On anything complex, a broad DD condition is worth more than a finance condition alone.

If you’re bidding at auction or buying on a compressed settlement, sort your funding position first. That’s what auction and pre-settlement finance is for: bidding with certainty rather than hoping.

9. Match the lender to the deal

There is no single best lender for commercial property. There are lenders that fit particular deals, and the cost of getting this wrong is usually the deal itself. On the right transaction, speed and certainty are worth more than a headline rate.

A major bank is the right answer when you have clean financials, a mainstream metro asset, a standard settlement period, and time. You’ll get the sharpest pricing available and a long facility. You’ll also get a process: credit committee, panel valuation queue, conditions precedent, and four to eight weeks of it.

A private lender is the right answer when the constraint is time or complexity rather than price:

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  An off-market opportunity with a 14-day settlement
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  An auction purchase where finance fell through and settlement is Friday
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  A vendor who’ll take a lower price for a fast, unconditional settlement, where the discount you capture exceeds the extra interest cost several times over
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  A Pty Ltd, trust or SMSF structure banks find awkward
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  A part-completed, specialised or unusual security
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  A live ATO debt, a recent restructure, or financials that don’t yet tell the story your business does
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  A deadline you simply cannot move: an expiring option, a mortgagee sale, a distressed vendor, a related settlement

At Secured Lending we lend our own funds and run our own internal valuation team. There’s no external credit committee sitting between your offer and settlement. That’s why we can issue a letter of offer the same day and settle in 24 hours where the file is clean and legals are ready. We write first mortgages, second mortgages and bridging finance from $250,000 to $10 million, on terms from 1 to 24 months, with rates from 9.7% p.a.

Two things worth being straight about. First, private money costs more than bank money. That’s the trade for speed, flexibility and certainty, and it only makes sense when those things are worth something on your particular deal. Second, short-term finance requires an exit. Before we fund, we want to see what takes us out: a bank refinance once the trading history or the lease supports it, a sale, a related settlement, a capital raise. A well-structured private loan is a bridge to somewhere specific. If you can’t articulate the exit, that’s a signal about the deal, not about the lender.

That’s the honest test. If you have time and clean numbers, take the cheap money. If you have a deadline, take the certain money, then refinance into the cheap money later.

10. Widen your reach with a specialist commercial mortgage broker

Commercial lending has no rate card and no single set of rules. Two lenders can look at the same file and come back 15 LVR points and 2% apart, because they hold different views on that asset class, that postcode, that industry and that borrower profile this quarter. Those appetites move constantly. A business owner approaching their own bank is seeing one view of their deal. A good commercial broker is seeing thirty.

The value isn’t just access, though. It’s placement and presentation. A top quality broker who specialises in commercial property finance knows which lender is currently writing childcare, which one has an appetite for regional industrial, which one will look through a messy FY24 caused by a one-off event, and which one has quietly stopped writing anything with a lease tail under three years. They also know how to structure and present your scenario so a credit analyst can approve it: the right add-backs, the right story around a covenant, the right supporting documents attached the first time.

That matters because your file has a shelf life. A commercial deal shopped one lender at a time over six weeks arrives at lender four looking tired, and by then your finance clause has expired. A broker who places it correctly the first time protects both the timeline and your negotiating position.

Choose one who works in commercial property specifically, who can name the lenders they’d approach for your scenario and explain why, and who is transparent about how they’re paid.

If a broker is already engaged, we work with them directly. We accept broker-introduced scenarios and pay commissions accordingly.

What a fundable file looks like

If you take one operational thing from this guide, take this. The buyers who get the best terms are not always the strongest borrowers. They’re often just the most organised ones, because a complete file gets a real answer instead of a cautious one.

Have this ready before you make an offer:

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  Contract of sale or agent’s contract, including the GST clause
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  Last two years’ financials and tax returns, plus current-year interims
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  ATO integrated client account statement
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  Lease, tenancy schedule and rent ledger, if tenanted
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  Rates notice and title search
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  Company and trust documents: ASIC extract, trust deed, ID for all directors and guarantors
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  A current statement of assets and liabilities
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  A one-page deal summary: what you’re buying, why, what you’re putting in, what you need, and how the facility gets repaid or refinanced

That last one is the highest-leverage page in the entire file, and almost nobody sends it.

Talk to us before you exchange, not after

Most of the deals we rescue could have been structured properly at the start. The best time to speak to a lender is while you’re still negotiating, when the settlement date, the finance clause and the GST treatment are still moving parts you control.

If you’re looking at a commercial acquisition and want a straight read on whether it’s fundable, how quickly, and at what level, send us the scenario. In most cases we’ll come back the same day. If the deal fits and you accept the terms, a letter of offer is issued immediately.

Secured Lending: Australia’s fastest private lender. Loans from $250,000 to $10 million, funded in as little as 24 hours. Over $500 million facilitated for Australian businesses, investors and developers.

1300 795 175 | Level 3, 1 Sussex St, Barangaroo, Sydney NSW

This article is general information only and does not take into account your objectives, financial situation or needs. It is not legal, tax or financial advice. Stamp duty, GST, land tax and superannuation rules vary by state and by circumstance, so obtain advice from your accountant and solicitor before entering into a contract. Lending criteria, terms and rates are subject to change and to assessment.

Gino Tabila

Associate Director

Mark Hutchins

Director