Buying a commercial office building means locking in your own premises, eliminating rent increases, and building equity in an asset your business controls.
The financing works differently to residential property. Lenders assess your business financials, not just your personal income, and most require a larger deposit upfront. The loan structure you choose affects your cash flow, tax position, and how quickly you can access equity if your business needs working capital later.
What deposit do lenders require for commercial property?
Most lenders require a deposit of at least 30% of the purchase price for a commercial office building. Some banks will lend up to 80% of the property value if your business has strong financials and you can provide a director guarantee, but 70% loan-to-value is the standard starting point. The deposit can come from cash reserves, equity in other property, or a combination of both.
Consider a manufacturing business purchasing a warehouse-office combination to consolidate operations. The property is valued at $850,000. The business provides a 30% deposit of $255,000 from retained earnings, plus another $40,000 to cover stamp duty, legal fees, and lender costs. The remaining $595,000 is financed through a commercial loan structured as a 15-year principal and interest term with a variable interest rate. This structure keeps monthly repayments predictable while allowing the business to make additional payments during strong trading periods without penalty.
How lenders assess your business for commercial property finance
Lenders look at your business financial statements, typically the last two years of profit and loss statements and balance sheets. They calculate your debt service coverage ratio, which measures whether your business generates enough income to cover the proposed loan repayments plus your existing debts. A ratio of at least 1.25 is standard, meaning your business earns $1.25 for every dollar of debt obligation.
Your business credit score also matters. If your business has a history of late payments to suppliers or tax debts, lenders either decline the application or price the loan at a higher interest rate. They also assess the property itself, focusing on whether it suits a range of potential buyers if they need to sell it. A generic office building in a commercial precinct is easier to finance than a highly specialised property with limited resale appeal.
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Fixed or variable interest rate for commercial loans
A variable interest rate gives you flexibility to make extra repayments and access redraw if you need funds later. A fixed interest rate locks in your repayment amount for a set period, usually between one and five years, which helps with budgeting but limits your ability to pay down the loan faster without incurring break costs.
Many businesses split the loan, fixing a portion to protect against rate rises while keeping the rest variable for flexibility. In our experience, businesses with seasonal income often prefer a variable structure so they can pay down the loan during high-revenue months and redraw if cash flow tightens.
Loan structure options for purchasing commercial property
A business term loan is the most common structure for purchasing a commercial office building. You borrow a set amount, repay it over an agreed term, and the property acts as security. Loan terms typically range from 10 to 25 years, though some lenders cap commercial loans at 15 or 20 years depending on the age of the building and your business profile.
If you are purchasing a property that needs fit-out work or renovations, a progressive drawdown structure lets you access funds in stages as the work is completed. This keeps your interest costs lower in the early months because you are only paying interest on the funds you have drawn down, not the full loan amount.
Another option is an interest-only period at the start of the loan, usually for the first one to five years. This reduces your monthly repayments while your business settles into the new premises, then switches to principal and interest repayments after the interest-only period ends. This approach suits businesses that expect revenue to increase once they move into the new building but need lower repayments in the short term.
What documentation you need for a commercial property loan application
Lenders require your last two years of business financial statements, including profit and loss statements, balance sheets, and tax returns. If your business is part of a trust structure, they also want trust deeds and details of the beneficiaries. You will need a contract of sale for the property, a valuation report, and evidence of your deposit funds.
If your business has not been operating for two full financial years, some lenders will consider a startup business loan structure, but they typically require a larger deposit and may ask for additional security such as residential property. Franchise businesses sometimes qualify for business loans with slightly lower deposit requirements if the franchise has a strong track record, as lenders view the established business model as lower risk.
How working capital and cash flow affect approval
Lenders want to see that your business will have enough working capital left after settlement to operate comfortably. If purchasing the property drains your cash reserves, they may decline the application or reduce the loan amount. A cashflow forecast showing projected income and expenses over the next 12 months helps demonstrate that your business can service the loan while maintaining operations.
Businesses that rely on invoice financing or a business line of credit to manage cash flow should disclose this during the application. Some lenders treat these facilities as existing debt and factor them into your debt service coverage ratio, which can reduce the loan amount you qualify for.
Using equity in the property for future business growth
Once you own the property and your business has paid down the loan, you can refinance to access equity for business expansion, equipment financing, or other opportunities. Lenders will revalue the property and assess your business financials at that time. If the property has increased in value and your business is performing well, you can often borrow against the equity without selling the property.
This gives your business a source of collateral for future growth without needing to seek unsecured business finance, which typically carries higher interest rates and shorter repayment terms.
Call one of our team or book an appointment at a time that works for you to discuss how to structure a commercial property loan that fits your business.
Frequently Asked Questions
What deposit do I need to buy a commercial office building?
Most lenders require a deposit of at least 30% of the purchase price for commercial property. Some banks will lend up to 80% if your business has strong financials and you provide a director guarantee, but 70% loan-to-value is the standard starting point.
How do lenders assess my business for commercial property finance?
Lenders review your last two years of business financial statements and calculate your debt service coverage ratio, which measures whether your income covers loan repayments plus existing debts. They also assess your business credit score and the property's resale appeal.
Should I choose a fixed or variable interest rate for a commercial loan?
A variable interest rate allows extra repayments and redraw access, while a fixed rate locks in repayments for one to five years. Many businesses split the loan to get both stability and flexibility.
What documentation do I need for a commercial property loan?
You need two years of business financial statements, tax returns, trust deeds if applicable, a contract of sale, a property valuation, and evidence of your deposit. Lenders also assess your cash flow forecast and working capital position.
Can I use equity in the property for future business needs?
Yes, once you have paid down the loan and the property has equity, you can refinance to access funds for business expansion or equipment without selling the property. Lenders will revalue the property and reassess your financials at that time.
