Commercial Finance and Funding

Getting a commercial loan is usually more complex than securing finance for purchasing a house. Interest Rates on commercial property are higher than that of residential property lending rates by around 1 to 2% depending upon the risk involved. Rates vary from bank to bank depending upon their cost of funds and the risk involved. In seeking commercial property finance it is important the deal looks strong before it is presented to the lender, so prepare a proposal that minimises risk and is attractive to any bank so you get offered a deal that is attractive to you.

Commercial Finance in New Zealand

Commercial Property Loans

Trading Banks offer some of the best rates. A good option to keeping repayments low is to arrange as large a deposit as possible in cash or in the form of equity on another preferably residential property. Your loan on the residential property will be at a lower interest rate and generally payable over 25 years, making for lower repayments. There is also second-tier lending via the likes of Solicitors’ nominee companies and private lenders, however these will be more costly to service due to higher interest rates and lending up to 70% of a current Registered Valuation. They are often shorter term, 1 to 5 years, and may be interest only.

Whether you are buying business premises, building an investment property portfolio, doing property development or wanting to refinance your current commercial property, lenders will be interested in the loan-to-value ratio (LVR), the risks involved and whether the property is vacant, rented out or tenanted by you.

Commercial Investment Properties

If the commercial property is not to be occupied by the owner but rented out to someone else then this is referred to as a Commercial Investment Property. Banks will usually lend between 50 - 65% of the purchase price for buying such an investment. If the rent isn’t sufficient to service the debt, you will require other sources of income to help repay the loan. As long as the property appreciates over a period of time, and more than covers the excess expenses the bank should still be comfortable with the deal. It’s up to you though to convince them it’s a good idea.

Owner Occupied Commercial Property

Rent can be a major expense for a lot of businesses, which has the potential to erode the long-term wealth of either the business or its owner.
- If it works for your business you may wish to buy the premises and stop paying rent, or pay it to yourself.
- Owning your business premises will provide you with stability for your business and also help avoid rent hikes at rent review dates.

By becoming the landlord with a tenant you can generally source finance in excess of the 65% lending criteria, as you get additional leverage against the property’s cash flow. Banks do however like to see three years business profitability and cash flow that is easily able to service the debt.

Whether you want to buy a commercial investment property or own your business premises it pays to shop the options to find a deal that best suits your situation and investment strategy.  It is also important to seek the advice of an accountant to ensure the property is purchased under the best structure.

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