When you're applying for a commercial loan, getting the loan structure right from the start can save you thousands of dollars and months of headaches. Whether you're buying commercial property, expanding business operations, or buying new equipment, understanding how to structure your commercial finance properly is crucial for success.
As experienced Commercial Finance Brokers, we've seen plenty of businesses make costly mistakes when structuring their loans. Let's explore how you can avoid these pitfalls and set up your commercial finance for success.
Understanding Commercial Loan Structure Options
Commercial loan structures aren't one-size-fits-all solutions. The right structure depends on your specific business needs, cash flow patterns, and long-term goals. Here are the main structural elements you'll need to consider:
Secured vs Unsecured Commercial Loans
- Secured Commercial Loans use collateral (like commercial property or equipment) to reduce lender risk
- Unsecured Commercial Loans don't require collateral but typically come with higher interest rates
- Your choice affects both your interest rate and loan amount potential
Interest Rate Structure
- Variable interest rates fluctuate with market conditions, offering potential savings when rates drop
- Fixed interest rates provide certainty for budgeting and financial planning
- Split structures combine both options for balanced risk management
Common Commercial Finance Structuring Mistakes
Many businesses rush into commercial finance without considering how different structures impact their operations. Here are mistakes we regularly see:
1. Choosing the Wrong Repayment Structure
Flexible repayment options exist for good reason. If your business has seasonal cash flow variations, a standard monthly repayment might strain your finances during quieter periods. Consider structures that align with your revenue cycles.
2. Ignoring Progressive Drawdown Benefits
When buying commercial land or undertaking staged developments, progressive drawdown facilities let you access funds as needed rather than taking the full loan amount upfront. This reduces interest costs significantly.
3. Overlooking Revolving Line of Credit Features
For ongoing business operations like upgrading existing equipment or managing working capital, a revolving line of credit provides flexibility that traditional term loans can't match.
Structuring for Different Commercial Purposes
Commercial Property Finance
When buying commercial property or looking to buy an industrial property, your loan structure should reflect the asset's income-generating potential. Consider:
- Loan-to-value ratios that preserve your working capital
- Repayment terms that align with lease agreements
- Interest-only periods for renovation or tenant fit-out phases
Equipment Finance Structures
For buying new equipment, the loan structure should match the asset's depreciation and your business's cash flow:
- Chattel mortgages for tax-effective ownership
- Operating leases for regularly upgraded equipment
- Hire purchase agreements for immediate use with deferred ownership
Working with Commercial Finance Brokers
Commercial Finance Brokers can access Commercial Loan options from banks and lenders across Australia, giving you more structuring possibilities than approaching a single lender directly. We compare different lenders' offerings to find structures that suit your specific requirements.
Our streamlined application process means we can present multiple structuring options quickly, helping you understand how different approaches affect your total borrowing costs and repayment flexibility.
Key Considerations for Your Loan Structure
Before finalising your commercial finance structure, evaluate these factors:
- Cash Flow Alignment: Does the repayment structure match your business's income patterns?
- Growth Plans: Will the structure accommodate future expansion needs?
- Tax Implications: How do different structures affect your business's tax position?
- Exit Strategy: Can you refinance or restructure if circumstances change?
- Redraw Facilities: Do you need access to repaid principal for future opportunities?
Making Your Commercial Loan Work Harder
Smart structuring can turn your commercial finance into a business growth tool rather than just a borrowing arrangement. Features like redraw facilities let you access repaid principal for new opportunities, while properly structured facilities can provide ongoing access to funding for expanding business operations.
Remember, the cheapest interest rate isn't always the optimal solution. A slightly higher rate with better structural features might deliver superior long-term value for your business.
At Loan Pantry, we specialise in helping Brisbane businesses and clients across Australia structure their commercial finance effectively. Our team understands how different lenders approach commercial loan structuring and can guide you towards arrangements that support your business goals.
Call one of our team or book an appointment at a time that works for you to discuss how proper commercial loan structuring can benefit your business.
