Commercial loan criteria: How lenders assess your eligibility

Isabella Bilaver

Wednesday, 11 November 2020

Whether you’re looking to purchase a new commercial property, asset or simply free up cash flow within your business, you might be wondering what criteria lenders use to assess your suitability as a borrower.

It’s important to note that criteria differs between lenders and different types of commercial loans, but this quick guide provides a general overview of the most common commercial loan criteria set by banks and non-bank lenders in Australia.

What is a commercial loan?

A commercial loan is used for a number of business purposes from buying property to hiring staff and funding equipment. The commercial lending space can be complicated (particularly in regards to borrowing for commercial property) as eligibility criteria varies quite significantly among lenders. For this reason, we recommend working with a lending expert who can navigate the market on your behalf, finding you a competitive rate and suitable product.

How do lenders assess my eligibility for a commercial loan?

Your eligibility for a commercial loan depends on a range of factors, like the type of loan you’re looking at, your credit score, time trading and financials. As mentioned, each lender has their own set of criteria, but in general, here’s what you can expect when applying for commercial finance.

Criteria for a commercial property loan

If you’re looking at purchasing a commercial property, such a retail store, office space, factory or warehouse, lenders will assess your eligibility for borrowing against the following criteria:

  1. Property details: your lender will want to know about the type of property you’re looking to purchase, including its location, postcode and features. Some lenders will only offer funding for properties within certain locations. For example, rural properties can be more difficult to qualify for than those in metro areas. The type of property itself plays a part in determining your LVR. For example, specialised properties like petrol stations and childcare centres have an LVR of 50, whereas standard commercial properties like office spaces and warehouses can see an LVR of up to 70%.

  2. Financials: your lender will want to see your most recent bank statements to evidence clear repayment history and consistent cash flow. They will also ask to see the financial statements of your business (i.e. balance sheet and profit & loss statement). This will allow the lender to further examine the income and expenses of your business, as well as your net asset position. They’ll also look at how much money you have to put forward as a deposit. Generally, lenders will want to see a deposit of at least 20% - 30% for a commercial property loan, or the equivalent amount of equity within an existing property.

  3. Personal and company information: you’ll need some basic details such as your ID and contact information to verify your identity. Lenders also require your ABN and other business specifics in order to get your application underway.

There are a few different types of commercial property loans available, and the one you choose will also determine the criteria lenders use and the amount of documentation you’ll need to supply.

The three main types of commercial property loans are:

  • Full-doc loans
  • Low-doc loans
  • No-doc loans

Full-doc

Full-doc commercial property loans require a complete assessment of the borrower and relevant applicants or guarantors. This means providing all income and liability statements (e.g. financials, tax returns and credit card statements). Full-doc loans require more work and documentation upfront, but as a result, also come with more competitive rates.

Low-doc

As the name suggests, low-doc loans come with considerably less paperwork. You (or your accountant) will simply declare your total income and that you have the ability to make their repayments. This offers businesses with low profit margins more choice and flexibility, allowing them greater access to finance (though typically from non-banks and alternative lenders). Lenders who accept low-doc applicants will be taking on more risk in noting seeing the full financial statements, and as a result charge slightly higher interest rates. However, the application and approval process is typically much quicker.

No-doc

To qualify for a no-doc loan, you’ll need a strong exit strategy—meaning enough security for lenders to recoup losses should you default on your loan. That’s because no-doc loans require zero documentation or accountant declarations. Again, the application process is much quicker than full-doc loans (and even low-doc loans) but the interest rate will be higher to justify additional risk.

Other types of commercial finance

Other commercial finance facilities include secured loans, unsecured loans, credit cards and asset finance. The best type of facility for you will depend on what you’re looking to fund. For example, if you need a commercial vehicle or heavy machinery, asset finance will most likely suit your needs. And if you need funding quickly for cash flow needs, hiring staff or stocking up on supplies, unsecured finance is a fast financing option. Often through unsecured finance we can approve and settle funds in as little as 24 hours.

How applying for a commercial property can affect your credit score

Applying for any loan—including a commercial loan—can impact your credit score. Making multiple finance enquiries will be recorded on file and may even damage your score, even if you don’t go ahead with the application. A low credit score is not looked upon favourably by lenders, so you’ll want to be careful with the number of enquiries you make and be confident that you’re eligible for funding first.

You can facilitate a soft check through Valiant, meaning you can find out if you qualify for finance before applying, and without impacting your credit score whatsoever.

The other great thing about Valiant is the streamlined application process. By working with an expert, you can cut through a lot of the red tape you’ll experience when applying directly through a bank, and paperwork is kept to a minimum.

Find out whether you qualify for commercial finance in two minutes, by using our free online loan finder.


Isabella is a Commercial Lending Specialist here at Valiant, specialising in finance for retail businesses. She is passionate about helping SMEs get their companies off the ground with tailored finance solutions.

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