How commercial loans work
Commercial loans are similar to regular mortgages, except lenders will accept commercial real estate as security on the loan. These loans are more specialised than a regular residential property loan, so it’s essential to seek expert advice.
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.
Like residential mortgages, a commercial loan can be charged interest at a fixed rate for a certain term, usually for three to ten years. These rates give you more stability, as repayment amounts won’t change even if the official cash rate changes.
If the official cash rate rises, some lenders might raise their interest rates but your fixed rate will still remain the same. However if the official cash rate drops, you will not be able to benefit from potential interest rate decreases.
You can also repay a commercial loan 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 means your interest can rise, it may also mean you save on interest if your lender lowers their floating rate.
In addition to property, it’s likely you will need to invest in equipment to run your business, such as office equipment, vehicles, technology and/or machinery. You can arrange your equipment finance 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 may be able to buy the goods for an agreed residual value.
Getting the right advice
Commercial loans can be complex, so it’s essential you speak to a professional you trust to support you with yours. At AAA Mortgage Solutions, we’ve helped hundreds of new or expanding businesses get the right finance, and made their lives easier by handling the hard work for them.