What are Owner-Occupied Commercial Property Loans?

If you're thinking about buying the premises your business operates from, you're looking at a different lending category to what most property investors encounter.

Owner-occupied commercial finance is designed for businesses purchasing property they'll use themselves, whether that's a warehouse, shopfront, office, or mixed-use space. Lenders treat this differently to residential loans and also differently to commercial investment property, because the purpose is business use rather than rental income.

How Owner-Occupied Commercial Loans Differ From Investment Property Finance

Owner-occupied commercial loans are assessed on your business cashflow and serviceability, not rental income. Where a commercial investment property relies on tenant leases to prove income, owner-occupied finance requires your business to demonstrate it can service the loan from its operating revenue. Lenders typically ask for two years of financials, BAS statements, and current profit and loss figures to assess whether your business generates enough income to cover repayments alongside operating costs.

Consider a café operator looking to purchase the shopfront they've been leasing in Oakleigh. The business turns over $600,000 annually with a net profit of around $120,000 after wages and expenses. The lender won't assess rental income because there is none. Instead, they'll review the business financials to confirm the cashflow can support a loan of $450,000 at current commercial rates, which might require monthly repayments of approximately $3,200 depending on the loan structure and term.

Deposit and Equity Requirements for Business Premises

Most lenders require a deposit of at least 30% for owner-occupied commercial property. This brings the loan to value ratio (LVR) to 70%, though some lenders may go to 80% LVR if your business has strong financials and you're willing to provide additional security, such as residential property. The deposit doesn't always need to come from cash savings. Many business owners use equity from their home or investment properties to fund the commercial deposit, which keeps working capital in the business.

In our experience, using equity from a residential property can be structured in two ways: cross-collateralising the residential and commercial properties under one facility, or keeping them separate with a distinct equity release against the home to provide the deposit. The second option keeps the properties legally separate and can make future refinancing or sale simpler, though not all lenders offer this structure.

What Lenders Look at When Assessing Your Application

Lenders assess owner-occupied commercial applications based on your business financial position, not personal income alone. They'll request recent business tax returns, profit and loss statements, balance sheets, and BAS lodgements to understand revenue trends and profitability. If your business is structured through a company or trust, they'll also review the structure itself and may ask for director guarantees.

The property itself is also scrutinised. Lenders order a commercial valuation to confirm the purchase price is supported by comparable sales, and they'll review zoning, the condition of improvements, lease terms if you're subletting part of the premises, and whether the property is suitable for other business uses if you were to vacate. A strata commercial unit in a well-maintained complex in Glen Waverley will generally be viewed more favourably than a standalone older warehouse with limited alternative use.

Loan Structure and Repayment Flexibility

Commercial loans typically offer terms between 5 and 30 years, though 15 to 20 years is common for owner-occupied premises. You can choose between principal and interest repayments or interest-only for an initial period, usually up to five years. Interest-only can help manage cashflow in the early years of ownership, particularly if you're also fitting out or renovating the premises after settlement.

Variable and fixed rate options are available. Variable rates on commercial lending are generally higher than residential rates but offer flexibility with redraw and the ability to make extra repayments without penalty. Fixed terms usually range from one to five years and provide certainty over repayment amounts, which can help with business budgeting. Some clients split the loan between fixed and variable to balance certainty with flexibility.

GST and Stamp Duty Considerations When Purchasing Business Premises

When purchasing commercial property, GST may apply to the purchase price depending on how the property is sold and whether the vendor is registered for GST. If GST applies and your business is registered, you'll typically pay the GST component at settlement and then claim it back in your next BAS. Your lender will usually only finance the GST-exclusive price, so you'll need to fund the GST portion separately until it's refunded.

Stamp duty on commercial property is calculated differently to residential property and is generally higher as a percentage of the purchase price. In Victoria, for instance, duty on a $500,000 commercial purchase would be in the vicinity of $27,000 to $30,000 depending on the property type and any concessions. This is a settlement cost you need to budget for separately from your deposit and cannot be included in the loan amount in most cases.

Why Owning Your Business Premises Can Strengthen Your Position

Owning the property your business operates from removes lease renewal uncertainty and rent increases, and it builds an asset on your balance sheet that can appreciate over time. If your business has been leasing the same premises for several years and the landlord is open to selling, purchasing that property can also mean avoiding relocation costs and business disruption.

From a lending perspective, owning commercial property can improve your business borrowing capacity in future. The property becomes an asset you can use as security for equipment finance, working capital loans, or expansion. It also provides an exit strategy if you eventually sell the business, as you can choose to sell the premises separately or lease it to the new owner.

If you're weighing up whether purchasing your business premises makes sense, or you want to understand what loan structure would suit your situation, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions