WiZDOM Loans – Commercial Finance – 25th June 2025

In this week’s webinar, you will gain a deep understanding of commercial finance and how it differs from residential lending. Andrew from Wizdom Financial Services provides a comprehensive overview of the complexities, lending structures, costs, loan terms, and key considerations when pursuing commercial property investments.

You’ll explore how to work with lenders, understand commercial property types, and develop strategies to successfully secure commercial finance.

Here’s what you’ll learn from this session:

The Grey Area of Commercial Finance

The session begins by explaining that commercial finance is not as clear-cut as residential lending. Unlike residential loans, where policies and LVRs are predictable, commercial finance operates in a grey area with varying rules depending on property type, location, tenancy, and lender appetite. Each property must be assessed individually – what applies to one deal may not apply to another.

Understanding Lenders and Loan-to-Value Ratios (LVRs)

You’ll explore the spectrum of commercial lenders:

• Major Banks: Harder to satisfy but offer cheaper money.
• Second and Third Tier Lenders: Easier to deal with but often come with higher interest rates.
• Private Lenders: Quick, flexible, and require minimal documentation, but significantly higher costs.

Typical commercial LVRs range from 20% to 80%, but most lenders base their offers around 65% LVR. Higher LVRs (up to 80%) may be available for owner-occupied properties, but leasehold or specialised properties can drop to 20%.

Loan Structures and Terms

Commercial loans usually have shorter terms than residential loans, commonly around 15 years. However, some second-tier lenders now offer terms up to 25 or 30 years. Loans often require principal and interest repayments, but interest-only periods (usually up to five years) are possible.

Some lenders may impose facility reviews linked to the Weighted Average Lease Expiry (WALE), which can lead to reassessment mid-loan. Andrew recommends seeking long-term, “set and forget” loans that don’t require ongoing reviews.

Costs and Fees

Commercial finance comes with higher costs than residential:

• Interest rates: Historically 1-1.5% higher than residential loans, but this gap has narrowed in recent years.
• Establishment fees: Typically range from 0.5% to 3% of the loan amount.
• Valuation fees: These vary based on location, property type, and complexity, with regional or specialised properties attracting higher costs.

Lease Stock Lending

Andrew introduces lease stock loans, a unique feature of commercial finance where the loan is serviced purely from the property’s lease income, without factoring in the borrower’s personal financial position. This strategy is particularly useful for borrowers with limited personal servicing capacity but access to capital.

Private Lending for Special Situations

Private money lenders are a valuable option for short-term deals, distressed assets, or properties without current leases. These lenders offer fast settlements and minimal servicing requirements but charge higher rates (around 10%) and substantial entry and exit fees.

Commercial Property in SMSFs

The session also covers Self-Managed Super Fund (SMSF) lending for commercial properties:

• SMSFs can borrow to buy commercial assets, including owner-occupied properties.
• Borrowing inside an SMSF is a quarantine assessment, meaning personal servicing does not usually impact the loan.
• LVRs for SMSFs are typically capped at65-70%.
• SMSF lending is now more competitive with more lenders entering the market.

Development Finance

Andrew briefly touches on development finance, recommending the 25% Developers Club for detailed learning. Development lending:

• Requires significant capital – typically a 35-40% cash contribution.
• Has strict LVR and cost-to-complete limits.
• Favors experienced developers but can be accessible with proper planning and support.

By the end of this session, you will understand the nuances of commercial finance, including the importance of conservative planning, how to navigate different lender types, and why working with experienced finance professionals is essential to streamline the process. Andrew emphasises that each commercial property deal is unique and encourages using finance brokers like Wizdom to secure the best outcomes.

Action Items

• Reach out to Wizdom to schedule a finance strategy review.
• Discuss commercial finance options with your existing Wizdom finance professional.
• If you are a Platinum or Quantum member, complete the 25% Developers Club course to learn more about commercial development finance.