Start with the borrowing case rather than a preferred loan figure. Serviceability is the lender’s assessment of whether available income and cash flow can support the proposed repayments after existing obligations are considered. The review may include business profit, tax debts, director loans, personal commitments and ordinary operating costs. Turnover does not establish repayment capacity by itself. Prepare several years of financial statements, current management accounts, tax returns and a short explanation for unusual movements. A useful habit is to reconcile the figures in the application with the latest bank statements before anyone submits the file.
Cash flow can expose pressure that a profit and loss statement does not show. Consider a small manufacturer seeking $900,000 for its premises while a major customer has extended payment terms from 30 days to 75. The business may remain profitable, yet suppliers could be waiting longer for payment and cash reserves may be shrinking. A lender may examine debtor ageing, creditor terms, stock levels and the timing of tax payments. The application should explain the payment cycle and show how much cash remains after the deposit, settlement costs and an appropriate operating buffer.
The property needs its own assessment. Loan-to-value ratio, or LVR, compares the proposed debt with the lender’s assessed value. A $650,000 loan against a $1 million valuation produces an LVR of 65 per cent, but the valuation may not match the contract price. Specialised premises, limited comparable sales, unusual improvements or a narrow tenant market can affect the valuer’s opinion. Before paying for legal work, check the permitted use, lease terms, zoning information and local demand. Keeping a reserve for a valuation shortfall can prevent a last-minute request for additional equity.
The advertised interest rate tells only part of the story. Commercial facilities may use variable pricing, a fixed period, interest-only repayments, a line of credit or separate limits for different purposes. Interest-only payments can preserve cash during a fit-out or renovation, but they do not materially reduce the principal during that period. Principal-and-interest repayments may suit an established owner seeking a steadily declining balance. Compare establishment fees, review dates, unused-limit charges, break costs where relevant, repayment frequency and the proposed exit or refinance plan. Ask for the balance outstanding at each scheduled review, not just the opening repayment.
Security and guarantees deserve careful attention before documents are signed. Security is an asset pledged to support the facility; a personal guarantee may make an individual liable if the borrowing entity fails to pay. Read the guarantee and mortgage documents with a solicitor, especially where a family home, jointly owned property or several companies are involved. Ask whether the security matches the loan purpose, whether assets can be released after repayment and whether the structure could make a future refinance harder. A lower rate may not justify exposing more personal or unrelated business assets than the transaction requires.
A clear application follows one consistent story. State the purchase or expansion purpose, ownership structure, requested amount, available equity and source of the deposit. Include an organisation chart when several entities are involved, and explain recent director changes, acquisitions or a weak trading period with supporting evidence. A simple file-naming routine, such as using the statement month and entity name, prevents the familiar problem of sending an outdated account twice. When comparing commercial property loan planning, check approval conditions, valuation requirements, reporting obligations and the timing of repayments, not merely the initial indication.
Before commitment, test the figures against less favourable conditions. Increase the assumed interest rate, allow for a vacant period, delay expected construction income and remove revenue from a major customer. A property investor with one tenant should budget for reletting time, advertising and possible incentives even when the current lease appears sound. Keep separate funds for stamp duty, legal fees, valuation charges, repairs and working capital because these costs may arise before the property generates additional income. Accounting and legal advice can address tax and ownership consequences, while the lending review should confirm that the facility still fits the business after those costs are included.
