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Applying for commercial loans is becoming increasingly more frustrating for clients as our economic environment tightens and the banks demonstrate an increasingly reluctant attitude to support even their established customers. Inflation and interest rates are on the rise and supply chain delays are causing funders to cloak themselves with cautiousness and conservatism.
Current commercial lending interest rates for commercial property are higher than residential property lending rates by around 2 to 3% and 5 to 6% for property development, depending on the risk involved. Additionally, interest cover ratios applied by the banks on investments are becoming increasingly restrictive on the amount the banks will advance.
Rates and terms vary from funder to funder depending on their cost of funds, their access to capital and their risk appetite.
In seeking commercial property finance, the deal must look strong before it is presented to the funder, so it is important to work with a commercial lending specialist that will prepare a proposal that minimises risk and is attractive to funders.
Main banks offer some of the best terms and interest rates. A good option to lift the amount of leverage available is to utilise equity on another property.
A commercial property loan will generally be payable over 5 to 15 years, as such careful consideration needs to be given as to the cash rental income against the cash lender principal and interest payment.
Second-tier finance is becoming increasingly more attractive to clients as a short-term solution whilst owners renegotiate leases or let vacant spaces as these funders take a more pragmatic can-do attitude to finance commercial property transactions; however, these will be more costly to service due to slightly higher interest rates. These loans are often shorter term, 1 to 2 years and in some instances interest payments and fees can be capitalised.
Whether your clients are buying business premises, building an investment property portfolio, doing property development, or wanting to refinance a current commercial property, it pays to work with a Vega Commercial lending specialist to understand their options and to find a funder that best suits your client’s situation.