Owning your own business is a dream many Australians aspire to, but never achieve due to lack of funds.
AAA Mortgage Solutions offers commercial loans for people looking to purchase, expand or refinance commercial properties and businesses.
Commercial loans are similar to regular mortgages, except lenders will accept commercial real estate as security on the loan.
However, as these loans are more specialised than a regular residential property loan, seeking expert advice is essential.
Commercial loans also differ in that they are they are usually underwritten based on the size and type of property being mortgaged, rather than the attributes and credit history of the borrower or company.
Interest rates on commercial mortgages are usually higher than those for residential loans, but there are still fixed or variable loan options.
Fixed rates for commercial loans
Similarly to residential mortgages, a commercial loan can be charged interest at a fixed rate for a certain term, usually for three to ten years.
Fixed interest rates mean more stability for repayments as they are not suspect to market fluctuations due to official cash rate changes.
This means if the official cash rate rises, some lenders might raise their interest rates but your fixed rate will still remain the same.
Conversely, if the official cash rate drops, you will not be able to benefit from potential interest rate decreases.
Variable rates for commercial loans
Commercial loans can also be repaid on a variable rate basis.
This means that interest on your mortgage can fluctuate, which is usually caused by rises and falls to the official cash rate.
While it does mean that your interest can rise, it may also result in interest savings if your lender lowers their floating rate.
Business line of credit
A business line of credit is an alternative to an overdraft that is designed to help your business with daily expenditures.
It works in a similar way to a usual overdraft and offers flexibility and control of your credit exposure.
You will be offered competitive rates and have instant access to cleared funds in this alternative to traditional bank lines.
Loan to value (LTV)
Loan to value is a calculation made by the lender that expresses the percentage of your loan against the total appraised value of the commercial property or business.
Commercial LTV rates are usually between 55 per cent and 70 per cent of the total value, unlike residential loans which are generally much higher.
Initial costs may include equipment that will help you run the business.
This could be office equipment, vehicles, technology or machinery.
Finance for these items or almost any other essential requirements can also be arranged through asset purchase or leasing.
With an asset purchase, the lender will buy the equipment on your behalf and you will agree to repay the costs and interest. Once the term matures, you own the assets.
When you lease the equipment, the lender will buy the assets and ‘rent’ them to you. At the end of the term, you maybe be offered to buy the goods for an agreed residual value.
For further information on commercial loans please contact our specialised commercial lending manager on 1300 555 888.