Beginner's Guide to Office Space Financing in McKinnon

Financing an office is a different process from financing a home, and the difference starts with how lenders assess the loan.

A commercial lender looks at the property, your business and your repayment capacity together. If you run a business in or near McKinnon and are thinking about owning your premises instead of renting, understanding that assessment will help you prepare well before you speak to a lender.

How Does Office Space Financing Work?

Office space financing is a commercial property loan secured against the office you are buying, and the lender assesses both the property and the income that will repay the loan. Most lenders set a lower maximum loan-to-value ratio (LVR) for commercial property than for homes, so you should expect to contribute a larger deposit. The exact limit depends on the lender, the property type and your financial position.

Lenders typically look at the financial position of the borrowing entity, such as a company, trust or individual, and the strength of the property itself. A well-located office with a steady tenant history, or one you will occupy yourself, is usually viewed more favourably than a vacant or specialised space.

Our commercial loans page outlines the types of lending we arrange for business owners.

Owner-Occupied or Investment Office: Which Are You Buying?

An owner-occupied office is one your business will use, while an investment office is leased to a tenant, and lenders assess each differently. With owner-occupied purchases, the lender focuses on your business earnings. With an investment purchase, rental income from the tenant also carries weight.

This choice shapes your loan structure, your repayment capacity and the lenders suited to your situation. If you plan to buy as an investor, our investment loans page covers how investment lending is generally assessed.

The trade-off is flexibility. Buying to occupy ties capital to a property your business depends on, while buying to lease relies on keeping the space tenanted.

What Deposit and Costs Should You Plan For?

Plan for a deposit that is larger than a typical home loan deposit, plus costs such as stamp duty, legal fees and a valuation. The amount varies by lender and property, so it is worth getting a clear picture before you make an offer.

Commercial property is valued differently from residential property. A lender will usually arrange its own commercial property valuation, which may consider rental income, location and the condition of the building. Lenders typically calculate LVR on the lower of their valuation and the purchase price. If the valuation comes in below the price, you may need to fund the shortfall with extra cash.

Stamp duty applies to commercial purchases in Victoria, and the amount depends on the property value. Our stamp duty page is a useful starting point, and your accountant can advise on how costs may affect your business.

Fixed or Variable: How Should You Structure the Loan?

A variable interest rate can move with the market, while a fixed interest rate stays the same for an agreed period, so the choice comes down to certainty versus flexibility. Some borrowers split the loan so part is fixed and part is variable.

Fixed rates give predictable repayments, but fixing can limit extra repayments and may involve break costs if you exit early. Variable rates offer more flexibility, such as the ability to make extra repayments or use a redraw facility on some products, but repayments can rise.

Consider a business owner buying a McKinnon-area office who borrows $800,000. Using an illustrative rate of 6.75% p.a. over 25 years on principal and interest, the monthly repayment is about $5,527. The owner is comfortable with that figure but worries about rate rises, so they choose to fix half the loan and keep half variable. The fixed portion gives certainty on half the repayments, while the variable portion lets them make extra payments when business cash flow is strong. The outcome is a loan that suits their cash flow, though they accept that the fixed half is less flexible if they want to repay early. Actual rates depend on your deposit size and lender, so use a repayment calculator to test your own numbers.

Our repayments page can help you work through figures for your own situation.

Can You Use Your Home as Security for an Office Loan?

Some lenders allow a residential property to be used as additional security for a commercial loan, which can reduce the cash deposit needed. The trade-off is that your home becomes tied to the business debt.

If the business struggles to repay, the lender may have rights over both properties. That risk is worth discussing carefully with your broker and a legal adviser before you proceed.

A secured commercial loan generally offers more favourable terms than an unsecured option, because the lender holds security. Unsecured lending usually suits smaller amounts and is rarely used for buying an office.

How Does a Broker Help With Commercial Property Finance?

A commercial finance and mortgage broker compares loan options from banks and lenders across Australia and helps match your situation to a suitable lender. Each lender has its own policy on LVR, property type and borrower structure, so finding a fit takes time.

A broker can also help you present your financials clearly, which matters because commercial lenders often want detail about business income and the entity buying the property. Brokers are usually paid a commission by the lender and may also charge a fee in some commercial deals. Ask your broker to explain how they are paid before you proceed. You can also read more on our why use a broker page.

If you already have a business loan, refinancing may also be worth discussing as part of your plans. Our business loans page covers other types of business lending.

Whether you are buying your first office or growing your property holdings, we are ready to work through the numbers with you. Call one of our team or book an appointment at a time that works for you, and we will help you find a loan structure that suits your business.

Frequently Asked Questions