Buying Commercial Property in Traralgon: What to Know

If you are thinking about buying commercial property in Traralgon, the loan structure matters as much as the building.

Commercial lending works differently from a home loan. Lenders look closely at the property, the business and your financial position together. Understanding that before you make an offer gives you more time and more choices.

At TM Finance Group, we are a team of Gippsland-based brokers who like to explain each step in plain language. This guide covers the questions we hear most from local business owners.

How Does a Commercial Property Loan Work?

A commercial property loan is a loan secured against a commercial building or land, such as an office, shop or warehouse. Lenders usually assess the property's value, how it will be used and the strength of the borrower's income.

It differs from a residential loan in a few ways. Lenders often ask for a larger deposit, and terms may be shorter. Interest rates can also differ from home loan rates. Exact terms depend on the lender, the property type and your financial position.

If the property will house your own business, lenders usually look at your business financials as well as your personal ones. Our commercial loans page explains the types of finance we can arrange.

What Is Commercial LVR and How Much Deposit Do You Need?

Commercial LVR (loan to value ratio) is the loan amount divided by the property's value, and it sets how much deposit you need. Lenders commonly lend a lower percentage on commercial property than on homes, but the limit varies by lender and property type.

The type of property changes the answer. A standard office or shop may be treated differently from specialised property or vacant land. A lender will arrange its own valuation, and that valuation, not the price you agreed, usually sets the amount it will lend against.

A deposit does not always have to be cash. If you own another property, some lenders will take it as extra security, which can reduce the cash you need. The trade-off is that more of your assets sit behind the loan, so a problem with repayments puts more at risk.

Using Equity and Collateral to Buy Commercial Property

You can often use equity in an existing property as collateral for a commercial purchase, which may reduce the cash deposit you need. The main risk is that the lender can take action against every property used as security if you fall behind.

Consider a Traralgon business owner who wants to buy the premises they currently rent. They have limited cash but own their home with a good amount of equity. A broker might compare lenders that accept the home as additional security. The owner could then borrow a higher share of the purchase and keep working capital in the business.

The outcome is a lower upfront cash requirement and rent that turns into loan repayments. The cost is that the home is now tied to the business debt. The owner would also need to check the lender's costs and conditions, and talk to their accountant about the tax treatment.

Variable or Fixed Interest Rate on a Commercial Loan?

A variable interest rate moves with the lender's pricing, while a fixed interest rate stays set for an agreed period. Variable loans can offer more flexibility, and fixed loans give more certainty about repayments.

Fixing protects you from rises during the fixed term. It can also mean break costs if you repay early or refinance, and some fixed loans limit extra repayments. A variable loan may allow features such as redraw or offset, but your repayments can rise.

Some borrowers split the loan, fixing part and leaving part variable. This gives some certainty and some flexibility, though it adds complexity to manage. Rates depend on your deposit size, the property and the lender, so ask for a current quote rather than relying on headlines.

Principal and Interest or Interest-Only: A Repayment Example

Principal and interest repayments reduce the debt over time, while interest-only repayments cover just the interest for a set period. Interest-only lowers the early repayment but the balance does not fall.

As an example, take a $800,000 loan at an illustrative rate of 6.75% p.a. Interest-only would cost about $4,500 a month (800,000 x 6.75% / 12). Principal and interest over 25 years at the same rate would cost roughly $5,527 a month.

The lower interest-only payment helps cash flow early on. After the interest-only period ends, you repay the full $800,000 over a shorter remaining term, so the later repayments are higher than the 25-year figure. Use our borrowing capacity tools to test how different structures affect what you can borrow. These figures are illustrative only and not a quote.

Buying Commercial Property Through Your Self-Managed Super or Business

How you hold the property affects your loan options and tax position. Common choices include buying in your own name, through a company or through a trust.

Each has different lending, tax and legal consequences. Your accountant and solicitor should weigh in before you sign a contract. If you are self-employed, lenders may ask for more than one set of financials, which our self employed loans page covers in more detail.

Buying Commercial Property as an Investment

A commercial property investment earns income from a tenant's rent, and lenders will consider that rent when assessing the loan. The risk is vacancy: if the tenant leaves, you still pay the loan.

Lenders may look at lease length and the tenant's strength. If you are comparing a commercial purchase with a residential one, our investment loans page outlines how those loans work.

Other Finance Options Around a Commercial Purchase

Some purchases need more than a standard loan. Bridging finance can cover a gap while you sell another property, and construction finance can fund a build with progressive drawdowns as work is completed. Both usually cost more or carry extra conditions, so they suit specific situations.

If you also need vehicles or machinery for the business, asset and equipment finance is a separate option from the property loan. You can also see our wider range of business loans.

Every purchase is different, so a conversation about your plans is the ideal starting point. Call one of our team or book an appointment at a time that works for you, and we will talk through your options in plain language.

Frequently Asked Questions