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Whether you are looking for funds for the first time or are reviewing your current arrangements it is well worth taking the opportunity to speak to a Creative Finance Consultant about your needs. Our extensive range of lenders also includes many specialist companies – so whether you need to borrow on business cash flows or based on security only we can help you obtain the terms and interest rate to suit your business.

How do Retail, Commercial, & Industrial Property Loans differ from Residential Lending?

Borrowing to purchase a non-residential property differs from borrowing for residential property in the following key ways:

• Interest Rates - the biggest variable. Interest Rates are discussed in more detail in the section below. The rest of the points below are important as it is these items that will primarily affect the interest rate you will be offered.
  
  
• Owner Occupier or Investment - depending on whether you are looking to occupy the property with your own business or for investment may impact the amount of deposit you need and the interest rate payable. For owner occupied property the risk to the lender is double as you are both the borrower and the tenant. So if there are problems they may be doubled. Generally for owner occupier you will require a greater deposit. For owner occupier, and to a lesser extent for investment, the interest rate and terms of the loan will vary considerably depending on the following:
  - Amount of the deposit
  - Time you have been in business
  - Strength of the business in terms of both other assets and cash flows
  - Perceived risks to your business in future
  - Specialisation - if you customise the property will it be more difficult for the lender to rent or sell in the event it is required.
  
  
• Ability to Review the Loan - many non residential loans are regularly reviewed by the lender eg annually. When assessing one loan over another it is important to consider the time and implications of such reviews. Some lenders will offer no reviews in exchange for a slightly higher interest rate. In many cases this is actually worthwhile to avoid having to spend the time involved with such reviews and the potential issues should the lender feel there is a problem.
  
  
• Higher upfront costs - as each deal is unique in its own way then costs are not standardised in the same way as residential lending. The legal costs of preparing contracts, valuations, and the cost of the broker are generally in addition to the loan and in most cases are borne by the borrower.
  
  
• Ongoing Costs - many facilities may have an inbuilt fee (called a ‘Line Fee’) that is payable each year irrespective of the size of the loan. It is important when considering offers that you take note of such fixed costs.
  
  
• Directors Guarantees - in many cases directors may be required to guarantee that the loan can be repaid or offer personal assets as security. There are big implications in this that need to be considered carefully.

The above are just key examples of the issues you may face in borrowing for non-residential purposes. The services of a good broker can make a very large difference. We strongly recommend taking the time to speak to a Creative Finance consultant to help you with your retail, industrial, and commercial needs.

Interest Rates

Fixed interest rates are available and operate the same way as for residential lending. However variable rates can be expressed in many different ways and it is important you understand the differences if you are to compare the offers of different lenders.

Most non-residential variable interest rates are expresses as a percentage margin over a base rate. This margin is straight forward; it is the base that is used that changes. The most common base used is the 90 day Bank Bill Swap Rate. However many larger institutions who source the funds internally or from other wholesale markets may use other benchmarks. Either way unless you have strong knowledge of this area it is best to let a professional broker such as Creative Finance help you negotiate this aspect of your loan.

Using Residential Property as Security

Many lenders are happy to use residential property for security for a non-residential loan. However unless the entire loan is secured within acceptable limits, eg 80% LVR, then rates will still be set on a non-residential basis.

If you do have sufficient residential assets to secure the entire loan then it is well worth considering. Interest rates are generally cheaper and the terms and conditions are standard. However many residential lenders will not lend money for the purchase of non-residential property. So before you rely on a residential loan to settle a non-residential property it is essential to make sure that you are not breaking the terms and conditions of your loan. If at settlement the lender discovers the purpose of the funds they may refuse to settle and you may find yourself in a difficult situation.

If you are considering using residential property as security for a non-residential loan then we strongly recommend you speak to one of our Creative Finance Consultants.