Aussie Business Finance 101: How Does a Commercial Loan Work

If you're an entrepreneur or small business owner in the Northern Beaches, understanding commercial loans is crucial for growth and stability. Whether you're looking to expand your business premises, invest in commercial property, or manage your cash flow, the right loan can make all the difference.

As experienced mortgage brokers with years of expertise in the Northern Beaches area, we'll break down the details on commercial loans, from types of loans to eligibility requirements and current property market trends.

Read on to find out what you need to know how to make lending successfully work for your business. 

Northern Beaches 2024 Commercial Property Market: A Snapshot for Business Owners

In 2024, the Northern Beaches has solidified its reputation as one of Sydney’s most desirable locations for both lifestyle and business. The region, stretching from Manly to Palm Beach, has attracted entrepreneurs and businesses alike due to its vibrant community, proximity to Sydney’s CBD, and beautiful coastal setting.

Key Market Stats for 2024

The commercial property market in the Northern Beaches has shown consistent growth over the last few years, offering a prime opportunity for business owners looking to invest or expand.

Here are the latest market insights for 2024:

• Commercial property values in the Northern Beaches increased by 7.3% in the past year, with the most popular areas for business being Brookvale, Dee Why, and Frenchs Forest (CoreLogic).
• Average rental yields for commercial properties in the region are holding steady at 5.1%, which is higher than the Sydney-wide commercial average of 4.5% (JLL Australia).
• The average office vacancy rate in the Northern Beaches is currently 4.6%, reflecting strong demand for workspaces, particularly for small to medium enterprises (Real Commercial).
• In particular, Brookvale remains the hub for industrial and retail businesses, with a median commercial property price of approximately $5,200 per sqm (Commercial Real Estate).

Why Northern Beaches is Ideal for Business Owners

The Northern Beaches isn’t just about pristine beaches and laid-back living—it’s fast becoming a dynamic business environment. For business owners, the region offers several distinct advantages:

• Proximity to Sydney CBD: While the Northern Beaches enjoys a more relaxed vibe than the bustling city centre, it’s still within a 30-40 minute commute from the Sydney CBD, making it ideal for businesses that need easy city access without the high rental prices.
• Growing Business Hub: Areas like Brookvale and Frenchs Forest have seen significant investment in infrastructure and commercial developments, making them attractive spots for businesses in industries like retail, tech, and logistics.
• Supportive Local Economy: The local council in the Northern Beaches has made it easier for businesses to thrive with initiatives that encourage commercial growth and sustainability. This fosters a strong, supportive network of local business owners.
• Access to Talent:  With a high quality of life, many professionals are moving to the Northern Beaches, giving businesses a larger talent pool to draw from, especially in industries like digital services, marketing, and retail.

Whether you're looking to buy your first commercial property, relocate your business, or expand, the Northern Beaches provides a robust, growing market with plenty of opportunities.

What is a Commercial Loan? 

In simple terms, a commercial loan is a type of loan specifically designed for businesses or individuals looking to purchase or invest in commercial property—think offices, retail shops, warehouses, or even mixed-use properties. 

Unlike a residential mortgage, which is geared towards buying a home, a commercial property loan is aimed at funding business-related real estate or projects. 

Most commercial loans are secured, meaning you’ll need to offer something of value—like your business premises, commercial property, or business assets—as collateral. In case you default on the loan, the lender can seize the collateral to recover their money.

However, there are also unsecured loans available, though these typically come with higher interest rates due to the increased risk for the lender.

Loan Repayment and Interest

The amount you’ll repay depends on the loan's size, interest rate, and duration. Interest rates for commercial loans can either be fixed or variable. It’s essential to choose terms that fit your business’s financial capacity to ensure you can meet your loan repayments without straining your cash flow.

Types of Commercial Loans Available 

When it comes to securing a commercial loan, there’s no one-size-fits-all. There are several types of loans you can choose from, depending on your financial situation and business goals in Northern Beaches, Sydney or across Australia:

Term Loans 

This is a common form of financing for businesses across Sydney, including the Northern Beaches. These loans provide a fixed amount of funding for a set loan term (typically 1-30 years), with monthly payments required over time. 

Lines of Credit 

Lines of credit are widely available to businesses in Australia, especially in growing markets like the Northern Beaches. 

This option allows businesses to borrow funds up to a certain limit as needed, providing flexibility for managing cash flow, which is essential for those dealing with fluctuating revenue, seasonal income, or unexpected expenses.

Commercial Mortgage Loans 

Businesses in the Northern Beaches often require commercial mortgage loans to purchase or refinance commercial properties such as offices, retail spaces, or industrial units. The property itself is used as security, which is standard practice.

Bridge Loans 

Bridge loans are commonly used by businesses in the Northern Beaches looking to "bridge" a temporary gap in their financing, often used while waiting for long-term financing to come through. These “short-term loans” are especially helpful when waiting for a larger loan or sale of property to go through. 

Equipment Finance 

This is a very relevant option, particularly for industries in Northern Beaches such as construction, hospitality, and retail. Equipment finance allows businesses to spread the cost of expensive equipment (like machinery, vehicles, or commercial kitchen gear) over time, rather than paying upfront.

Eligibility Requirements for a Commercial Loan 

Getting approved for a commercial loan isn’t just about wanting the money; lenders want to see that you’re financially stable and can repay the loan over the agreed repayment term. 

Here are some key eligibility requirements:

1. Credit Score

Both your business credit score and personal credit score play a significant role in determining your loan eligibility. For businesses in Northern Beaches, lenders typically expect:

• A business credit score of at least 600-700, depending on the lender. A higher score improves your chances of approval and may lead to lower interest rates.
• A personal credit score of at least 650 if you're applying as a sole trader or using personal assets as collateral.
• Any bad credit history or defaults on your credit file could lead to loan rejections or higher interest rates.

2. Financial Position

Lenders will conduct a thorough review of your financial position to ensure you can maintain regular loan repayments. Expect the following requirements:

• Proof of consistent cash flow over at least two to three years. This includes financial statements, profit and loss records, and tax returns.
• A detailed overview of business assets (such as equipment, inventory, or real estate) and any personal assets if they will be used to secure the loan.
• A strong balance sheet that shows positive net operating income, with minimal debt obligations relative to your earnings.

3. Track Record

Lenders in Northern Beaches prefer businesses with a proven track record. Startups may struggle to qualify without solid financial history. Here’s what you’ll need:

• At least two years of trading history, with demonstrable financial growth.
• Businesses with high-growth potential or stable income in sectors like retail, hospitality, or tech have an advantage.
• A strong track record of meeting financial obligations (i.e., loan repayments, supplier payments) will be looked upon favourably.

4. Collateral

Most commercial loans are secured loans, meaning you’ll need to provide assets as collateral. Here’s what to expect:

• Commercial property or business premises are the most common forms of collateral. Northern Beaches lenders typically expect collateral to cover at least 70-80% of the loan amount.
• Other assets like business equipment, vehicles, or inventory may be used, depending on the nature of your business.
• In some cases, lenders may require personal guarantees from business owners, especially if your business is new or lacks sufficient assets.

Additional Local Factors

• Industry Type: If your business operates in a high-demand industry in Northern Beaches, such as hospitality or construction, lenders may offer more flexible terms. On the other hand, higher-risk industries like tech startups might face stricter requirements.
• Local Market Conditions: Lenders are also influenced by the commercial property market. With the Northern Beaches showing strong growth in areas like Brookvale and Dee Why, businesses located in these high-growth areas might find it easier to secure loans.

Case Study: Commercial Loan Success in Northern Beaches 

Let’s take the example of Andrew, a local business owner in Brookvale. 

Andrew was looking to expand his office space and needed a commercial mortgage loan for a $1.5 million property purchase. He had a strong business credit score, but his personal credit score was less than ideal due to an old default on his credit file. 

With the help of our team at Mortgage Brokers Northern Beaches, we explored commercial lending options tailored to his financial situation. 

After reviewing a range of lenders, we secured a competitive low-rate loan from a private lender. Andrew was able to lock in a 25-year repayment term with affordable monthly payments.

Tips to Increase Chances of Approval for a Commercial Loan

Securing a commercial loan in Northern Beaches can be competitive, especially with the growing demand for business financing in 2024. 

To improve your chances of approval, it’s important to prepare thoroughly and present your business in the best possible light. Here are some practical tips to help you stand out when applying for a commercial loan.

1. Improve Your Credit Score

Ensure both your business credit score and personal credit score are in good shape. Pay off outstanding debts and resolve any defaults on your credit file before applying.

2. Prepare a Detailed Business Plan

Provide lenders with a detailed business plan that clearly outlines your business goals, financial projections, and how the loan will be used to generate income or growth.

3. Show Consistent Cash Flow

Demonstrating consistent cash flow over at least two years gives lenders confidence in your ability to handle loan repayments. Include operating income and profit margins in your documentation.

4. Offer Strong Collateral

Secure your loan with commercial property, business premises, or valuable business assets. This significantly reduces the risk for lenders and can improve your loan terms.

5. Keep Financial Records Organised

Present up-to-date financial statements, including profit and loss, balance sheets, and tax returns. Lenders want a clear view of your financial position and how funds will be repaid.

6. Reduce Existing Debt

Minimising your current debt will improve your debt-to-income ratio and signal to lenders that your business can manage additional loan amounts responsibly.

7. Build a Strong Relationship with Local Lenders

Reach out to local lenders or brokers who understand the Northern Beaches market. This personal connection can increase your chances of approval, as they may tailor solutions to local business needs.

8. Apply for the Right Type of Loan

Make sure you apply for the type of business loan that fits your needs, whether it’s a term loan, line of credit, or equipment finance. Consider as well government loans for businesses. Tailoring your application to the right loan increases your chances of success.

FAQs 

What’s the difference between a commercial and residential loan? 

Commercial loans are for business purposes like property purchases or equipment finance, while residential loans are for personal homes.

What’s a typical loan term for a commercial property loan? 

Loan terms range from 1 to 30 years, depending on the lender and the nature of the loan.

Do I need a high credit score to get a commercial loan?  

Yes, a higher credit score increases your chances of approval and better interest rates.

Can I use a commercial loan to buy residential property? 

No, commercial loans are specifically for business-related properties. A residential mortgage would be needed for a home.

What’s the application process like? 

It involves submitting a loan application, credit check, financial documents, and waiting for approval.

Are there unsecured commercial loans? 

Yes, but they typically have higher interest rates and require a strong credit profile.

Ready to Take the Next Step?

Understanding how commercial loans work is key to growing your business in the Northern Beaches. With the right approach—whether you're buying a new property, expanding your business, or improving cash flow—there’s a solution out there that can meet your needs. 

If you're ready to explore your commercial loan options, we’re here to help. Chat with  Mortgage Brokers Northern Beaches  today for expert advice and tailored lending solutions that fit your business goals.

Visit us at Mortgage Brokers Northern Beaches or call  0403 316 686  to get started!