Buying the Retail Space You Already Lease
Retail property finance lets you purchase the commercial premises your business occupies rather than continuing to pay rent to a landlord. A commercial property loan is structured differently to a home loan, with lenders assessing both the property's income potential and your business's financial strength before approving finance.
Consider a business owner leasing a 180-square-metre retail unit in Fortitude Valley who discovers the landlord is selling. The property is tenanted, generates $48,000 in annual rent, and the asking price sits at $720,000. A lender will look at the rental yield (around 6.7% in this case), the lease terms, the tenant's covenant strength, and the borrower's ability to service the loan from business income or rental income. They'll typically lend up to 70% of the property's valuation, meaning this buyer would need around $216,000 in deposit plus another $25,000 to $30,000 for legals, stamp duty, and valuation fees. The loan structure might include a 25-year term with interest-only payments for the first five years, allowing the business to manage cash flow while building equity.
How Lenders Assess Retail Property Loans
Lenders assess retail property finance based on the property's serviceability and the borrower's financial position. They'll request recent financial statements for your business, tax returns, a lease agreement if the property is tenanted, and a commercial property valuation. The loan-to-value ratio (LVR) for retail property typically caps at 70%, though some lenders will go to 80% if the borrower has strong financials and the property is in a high-demand location.
The rental income plays a central role in the assessment. If you're buying a property you currently lease and plan to continue operating from it, the lender will assess your business's ability to cover loan repayments. If the property is tenanted by another business or you plan to lease it out, the lender will assess the tenant's covenant strength and the lease terms. A tenant on a five-year lease with two five-year options is far more attractive to a lender than a tenant on a periodic lease with no formal agreement.
Interest Rates and Loan Terms for Retail Property
Commercial interest rates sit higher than residential home loan rates, typically ranging from 1% to 2% above the standard variable rate depending on the lender, LVR, and property type. You can choose between a variable interest rate, which fluctuates with market conditions and often includes a redraw facility, or a fixed interest rate, which locks in your repayments for a set period but limits flexibility.
Flexible loan terms vary between lenders. Some offer interest-only periods of up to five years, which can help with cash flow if you're reinvesting profits into the business. Others allow progressive drawdown, which suits buyers purchasing off-the-plan or undertaking fit-out work before settlement. If you're expanding and need to purchase equipment or fund working capital at the same time, some lenders will structure the facility as a revolving line of credit secured against the property.
Refinancing an Existing Commercial Property Loan
Commercial refinance becomes relevant when your current loan no longer suits your business needs or when you can access lower rates elsewhere. In our experience, business owners refinance to release equity for expansion, to move from interest-only to principal-and-interest repayments, or to consolidate multiple facilities into one loan structure.
As an example, a café owner in New Farm purchased their shopfront five years ago with a commercial property loan at a higher rate. The property has increased in value, and the loan balance has reduced to 55% LVR. They want to open a second location and need $150,000 for fit-out and working capital. Rather than taking out a separate unsecured business loan at a higher rate, they refinance the existing property loan, increase the facility to 65% LVR, and use the released equity to fund the expansion. The business refinance loans process involves a new valuation, updated financials, and a comparison of loan products across multiple lenders.
Strata Title vs Freestanding Retail Property
Strata title commercial properties are common in shopping centres, mixed-use developments, and retail precincts where multiple tenancies share common areas. Lenders treat strata title commercial property differently to freestanding retail property because of the shared ownership structure, body corporate fees, and sinking fund obligations.
A strata title commercial unit in South Brisbane might have lower outright purchase costs compared to a freestanding building, but the body corporate fees can be substantial, sometimes $10,000 to $15,000 per year depending on the development. Lenders will factor these fees into the serviceability assessment. They'll also review the body corporate financials to check for upcoming special levies or maintenance issues that could affect the property's value. Freestanding retail property avoids body corporate complications but often requires a larger deposit and comes with full responsibility for building maintenance and insurance.
How Loan Pantry Structures Retail Property Finance
We regularly see business owners who assume their bank will automatically approve commercial finance because they've banked with them for years, only to find the process is far more involved than a residential home loan. Commercial lenders assess the deal differently, and having access to multiple lenders means we can match your business structure and property type to the lender most likely to approve and offer flexible repayment options.
If you're buying retail property in Brisbane or across Australia and want to understand how the numbers work for your situation, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What deposit do I need for a retail property loan?
Most lenders require a deposit of 20% to 30% of the property's valuation, meaning they will lend up to 70% to 80% LVR. You'll also need to budget for legal fees, stamp duty, and a commercial property valuation, which can add another $25,000 to $40,000 depending on the property price.
Can I use rental income to service a commercial property loan?
Yes, lenders will use rental income from a tenanted property to assess serviceability. They'll review the lease terms, tenant's financial strength, and rental yield to determine how much they'll lend. If you're occupying the property yourself, they'll assess your business income instead.
What is the difference between strata title and freestanding retail property?
Strata title commercial property is part of a shared development with body corporate fees and shared common areas. Freestanding retail property is a standalone building with no body corporate, but you're responsible for all maintenance and insurance costs.
How long does it take to get approved for retail property finance?
The approval process typically takes two to four weeks once the lender has all required documents, including financials, lease agreements, and a commercial valuation. Complex deals or properties in regional areas may take longer.
Can I refinance a commercial property loan to release equity?
Yes, if your property has increased in value or your loan balance has reduced, you can refinance to release equity. This is common when business owners want to fund expansion, purchase equipment, or consolidate debt without taking out a separate loan.
