Commercial Property Loans in Australia: Rates, Buy vs Lease, Bank Approval & Key Risks Explained
09 Dec 2025
Thinking about buying your own business premises in Australia? Learn how commercial loan rates compare to home loans, how to weigh up buying vs leasing, what banks look for when you apply, the main risks and ownership structures, and practical steps to save money on your commercial purchase.
Key Takeaways
- Commercial property loan rates in Australia are typically 1.5%–3.0% higher than comparable home loan rates, reflecting higher perceived risk and property-specific factors such as tenant quality, lease terms and location.
- When deciding whether to buy or lease your commercial premises, compare 5–10 year costs, cash flow and flexibility; buying usually needs a 30–40% deposit but can build long-term wealth and cost certainty.
- Banks assess owner-occupied commercial loans on 2–3 years of business financials, your personal position and credit history, an independent valuation, and a Debt Service Cover Ratio (DSCR) typically between 1.25x and 1.50x.
- Choosing the right ownership structure (personal/company, family trust, or SMSF) and preparing a lender-friendly application can reduce risk, improve approval odds and save money over the life of your commercial loan.
How Commercial Property Loan Rates Compare to Home Loans in Australia
Commercial property loan rates in Australia are usually higher than standard home loan rates, and that gap has widened since COVID.
At a glance:
- Commercial loan rates typically sit 1.5%–3.0% above comparable residential home loans.
- Banks have become more conservative with commercial lending since COVID.
- Higher construction costs and office vacancy rates are adding pressure to the market.
These factors mean lenders are pricing in extra risk, especially for certain types of commercial properties such as CBD offices or specialised premises. If you’re comparing a commercial loan to a standard home loan, it’s important to understand this pricing gap upfront so you can budget realistically and structure your borrowing efficiently. For a deeper dive into how these pricing gaps work, see our guide to commercial property loan rates in Australia.
Why are commercial loan rates higher?
- Perceived risk: Commercial tenants can be harder to replace than residential tenants, so cash flow risk is higher.
- Market uncertainty post‑COVID: Hybrid work, online retail and changing business models have made future demand for some asset types less predictable.
- Property-specific factors: Lenders look closely at lease terms, tenant quality, location and building use before deciding your rate.
| Loan Type | Typical Rate Position* | Key Risk Drivers |
|---|---|---|
| Owner-occupied home loan | Baseline | Stable demand, broad borrower base |
| Standard commercial investment | +1.5% to +3.0% vs home loan | Tenant risk, lease term, asset type |
| Specialised commercial (e.g. hotels, function centres) | Often above standard commercial | Highly cyclical demand, specialised use, Lower LVRs |
*Indicative only – actual pricing varies by lender and borrower profile.
If you’re looking at a commercial purchase, it may still stack up very well when you factor in rental savings or rental income. The key is to compare the total cost of funds against your business or investment returns.
If you’d like help benchmarking commercial rates against residential options – and working out whether to borrow in your personal name, a company or SMSF – a mortgage broker can step through the numbers and identify lenders who are most competitive for your scenario.
Buy vs Lease Commercial Property: How to Weigh the Pros and Cons for Your Business
For many Australian businesses, the buy vs lease commercial property decision is one of the biggest strategic calls they’ll make. Owning your premises can deliver control and long‑term wealth, while leasing can preserve cash and flexibility.
Here’s a quick comparison of the key differences:
| Factor | Buying Your Premises | Leasing Your Premises |
|---|---|---|
| Control over fit‑out & tenure | High – you decide layout, upgrades, and how long you stay | Medium – subject to landlord and lease terms |
| Upfront cash required | High – usually 30–40% deposit plus costs | Low–Medium – bond, fit‑out, some upfront expenses |
| Wealth creation potential | Stronger – property can grow in value over time | Limited – no ownership of the asset |
| Occupancy cost predictability | More predictable – principal & interest schedule | Variable – rent reviews, market changes |
| Risk concentration | Higher – more capital tied to one asset | Lower – more capital kept inside the business |
This table is a starting point; the best choice depends on your cash position, growth plans and how critical location is to your operations.
When buying, lenders typically look at your loan‑to‑value ratio (LVR) and your business strength. As a guide for owner‑occupied commercial property in Australia:
- Standard bank LVRs: around 60–70% of the property value.
- Higher LVRs (up to 75–80%) may be available if:
- Your business has strong, stable cash flow.
- You can offer extra security, such as your home or another property.
That means you’ll usually need a 30–40% deposit, plus stamp duty and transaction costs. This is where many owners hit the trade‑off: should that cash go into property or stay inside the business, funding stock, staff, marketing or expansion? To see how lenders link LVR and pricing, explore our explainer on loan-to-value ratio (LVR) and its impact on the interest rate.
A practical framework is to model the next 5–10 years:
- Compare costs
Current and projected rent (including annual increases), projected loan repayments, interest rates, and property outgoings (insurance, maintenance, land tax where applicable). Our guide on the holding cost of a property can help you capture all ongoing expenses. - Assess your stability
How likely are you to outgrow the site or shift locations? Would relocating be costly or disruptive to clients and staff? - Test alternative uses of your deposit
Could the same capital generate a higher return if reinvested in the business?
If you’d like help running these numbers for your specific situation, speak with a mortgage broker who understands commercial property finance and can compare buy vs lease scenarios tailored to your business.
How Banks Assess Commercial Property Loans for Owner‑Occupiers in Australia
When you apply for a commercial property loan as an owner‑occupier, banks want to see that both you and your business are financially stable and that the property is a sound security.
In practice, lenders will usually:
- Review your last 2–3 years of business financials (profit and loss, balance sheet, BAS).
- Check your personal financial position – assets, liabilities and living expenses.
- Pull your personal and business credit history for any red flags; improving this ahead of time using strategies from our guide on how to improve your credit score in Australia can really help.
- Order an independent valuation of the commercial property.
Banks aren’t just ticking boxes – they’re testing whether your business can comfortably service the debt now and under higher interest rates.
A clean set of accounts, a realistic purchase price and a solid property valuation all help position your application as low‑risk in the eyes of the lender.
A key metric banks use is the Debt Service Cover Ratio (DSCR) – this shows how many times your net income covers your annual loan repayments.
Typical DSCR expectations for owner‑occupied commercial loans:
| Item | Typical Bank Requirement* |
|---|---|
| DSCR range | 1.25x – 1.50x |
| Meaning | Net income is 25–50% above repayments |
| Interest rate buffer applied? | Yes, to stress test repayments |
*Actual requirements vary by lender and industry risk.
Quick example
- Proposed annual loan repayments: $120,000 (after rate buffer).
- Minimum DSCR at 1.25x: 120,000 × 1.25 = $150,000.
- Your business needs at least $150,000 in net income to be considered comfortably able to service the debt.
To improve your approval odds:
- Clean up financials – review unnecessary expenses, lodge tax returns on time and avoid unexplained cash movements.
- Prepare a clear business summary explaining why buying makes sense (e.g. rent savings, space for growth, better location for clients).
- Avoid over‑paying so that the bank valuation supports your purchase price and your target loan‑to‑value ratio (LVR).
If you’re unsure how your numbers stack up against bank criteria, speak with a mortgage broker who can run the calculations, flag any gaps and help you position your application before you approach a lender.
Key Risks, Ownership Structures and Strategic Choices for Commercial Property Loans
Understanding the Key Risks of Owning Your Business Premises
Buying your own commercial property can be a smart move, but it does come with specific risks Australian business owners should weigh up carefully.
Major risks to consider include:
- Location and tenant demand: If your business ever vacates, will other tenants want your space? Properties in fringe locations or highly niche areas can be harder to lease or sell.
- Interest rate and refinance risk: Commercial loans often have shorter terms and sharper review points than home loans. If rates rise or your business performance weakens, refinancing may be tougher and more expensive.
- Obsolescence risk: If the building or fit‑out is highly tailored to your current operations (for example, a specialised workshop or medical fit‑out), it may not suit future tenants or buyers.
Real‑life scenario:
A small manufacturing firm in regional NSW buys a warehouse perfectly fitted to its machinery. Five years later, the owner wants to relocate closer to Sydney. The specialised fit‑out makes the property attractive to only a narrow group of tenants, leading to a long vacancy period and cash‑flow pressure while the original loan still needs to be serviced.
Being clear on these risks upfront helps you structure the purchase, the loan term, and your exit strategy so the property supports, rather than constrains, your long‑term business plans.
Choosing the Right Ownership Structure for Your Commercial Property
The way you own the property can be just as important as the property itself. Common ownership structures each have different tax, asset‑protection and lending consequences.
| Ownership structure | Key benefits | Key watchpoints |
|---|---|---|
| Direct personal or company ownership | Simple, familiar to lenders, faster to set up | May expose assets to business risk; less flexible for family planning |
| Family trust | Potential tax flexibility, estate‑planning benefits | More complex; lender may require personal guarantees |
| SMSF with limited recourse borrowing arrangement (LRBA) | Can build retirement wealth using business rent; asset generally protected within super | Strict rules, contribution limits, higher setup and running costs |
Why early advice matters
Before you sign a contract, it’s vital to coordinate your mortgage broker, accountant and solicitor. Together they can:
- Match the ownership structure to your tax position and retirement goals.
- Check lender appetite for your chosen structure (especially trusts and SMSFs).
- Build in long‑term flexibility so you can sell, move, or admit new business partners without major tax or legal headaches.
Next step: Speak with a broker experienced in commercial property finance to map out the risks, structure options and lending strategy before you commit to a purchase.
Practical Steps to Prepare, Apply and Save Money on Your Commercial Purchase
Before you start scrolling listings or calling agents, step one for any commercial property purchase for your Business is to get your strategy and numbers clear. A well‑thought‑out 5–10 year business plan not only guides what you buy, but also how lenders assess your commercial loan application.
Use this simple checklist before you start hunting:
- Clarify your 5–10 year business plan – expected growth, staffing, and space needs.
- Obtain a borrowing capacity assessment – know your realistic price range and required deposit. There are options to borrow 100% for a Commercial Property for your business up to a certain price range. Check out Owning A Commercial Property Without Deposit.
- Decide how much personal security you’re comfortable offering – including whether you’d consider using your home as additional security.
- Create a property checklist – covering location, zoning, fit‑out potential, parking, access, and key due diligence items.
Real‑life example: A small manufacturing business in Brisbane mapped out a 7‑year plan showing they’d outgrow their lease within three years. With a broker’s help, they assessed borrowing capacity early and adjusted their expectations from a freestanding warehouse to a strata industrial unit in a better‑connected location. This gave them room to grow without over‑stretching cash flow.
Once your strategy and capacity are clear, focus on protecting yourself during the purchase and structuring the deal to support long‑term savings.
Key contract and risk checks:
- Always include finance and due diligence clauses so you can walk away if funding or inspections don’t stack up.
- Review outgoings (rates, insurance, strata, maintenance) to avoid nasty surprises that hurt cash flow.
- Order building and pest reports and confirm zoning, usage approvals, and any compliance issues.
- Understand that using your home as security may reduce the cash deposit you need, but significantly increases personal risk if the business hits a rough patch.
To save money over the life of the loan, smart borrowers:
- Use competitive tension between lenders to negotiate sharper rates and fees.
- Match loan features to cash flow – for example, offset accounts, redraw facilities, or seasonal repayment profiles for businesses with uneven income.
- Keep financials “lender‑friendly” – avoid aggressively minimising taxable profit in the year or two before applying, as lower profits can reduce your borrowing power. For more preparation tips, see our top 10 tips for self-employed applicants looking for a loan.
The biggest savings often come not from the headline interest rate, but from getting the right structure and protections in place from day one.
For further reading, check out our overview of commercial property loans in Australia and how they differ from home loans. Discover more about how your loan-to-value ratio (LVR) can affect your interest rate and long-term borrowing costs.
Buying your own commercial premises is a major step, but with the right structure, clear numbers and a well-prepared application, it can become a powerful wealth-building asset for both your business and your personal financial future.
Disclaimer:
All information on this website is general in nature and not intended as financial, investment, legal, or tax advice. It may not suit your personal circumstances. You should seek independent professional advice before acting on any content. We accept no liability for actions taken based on this information.
