How Much Deposit Do You Need for a Commercial Property Loan?

Buying commercial property, whether it’s premises for your own business or an investment, usually takes a bigger deposit than a home. Lenders see commercial property as higher risk because values and rents can move more and vacancies can last longer. Here’s what to expect and how to keep the cash you need to a minimum.

Typical lending limits

Lenders measure the loan as a percentage of the property’s value, called the loan-to-value ratio or LVR. As a general guide:

• Standard commercial property (offices, retail, industrial): banks commonly lend up to 65% to 70% of the value
• Owner-occupied premises with strong business financials: some lenders will go higher
• Specialised property (childcare, hotels, service stations, rural): often lower, and assessed case by case
• Non-bank and private lenders: can sometimes lend more, at a higher cost

That means you’ll usually need a 30% to 35% deposit, plus costs, unless you use other security.

Upfront costs to budget for

• Transfer (stamp) duty, which varies by state and price
• GST, unless the sale is a going concern or uses the margin scheme
• Legal and conveyancing fees
• Valuation and lender fees
• Building, pest and environmental reports where relevant

What lenders look at besides the deposit

• Servicing: can the business or rent comfortably cover the repayments?
• The lease: tenant quality, length of lease remaining and rent reviews
• The property: location, zoning, condition and how easy it would be to re-lease
• Your track record: trading history and experience with property

Ways to reduce the cash you need

• Use equity in other property as additional security
• Choose a lender with a higher LVR for your property type
• Arrange GST funding so you don’t have to find it from cash at settlement
• Buy through your SMSF if it suits your situation. See our guide to buying commercial premises through an SMSF.

How a broker helps

Commercial lending policy varies more than home lending. LVRs, loan terms and how rent is assessed all differ between lenders. We compare banks, non-banks and private lenders on our panel to find the structure that needs the least cash from you. Read more about commercial property finance.

Frequently asked questions

What deposit do I need for a commercial property?

As a guide, most bank lenders want a deposit of 30% to 35% plus costs for standard commercial property. Some lenders accept less for strong owner-occupiers or with extra security, and specialised property usually needs more.

Can I use equity in my home for a commercial property deposit?

Yes. Many buyers offer their home or another property as additional security, which can reduce or replace the cash deposit. It does put that property at risk, so get advice first.

Is GST payable on a commercial property purchase?

Often, yes, unless the sale is a going concern or uses the margin scheme. If you’re GST registered you can usually claim it back, but you may need to fund it at settlement.

This article is general information only and doesn’t take into account your objectives, financial situation or needs. Speak to us or your accountant before making a decision.