Private first mortgages over commercial and industrial property

For many business owners, the building is worth more than the business. A warehouse bought fifteen years ago, a strip shop that has housed three different tenants, a factory unit in an estate that has filled up around it — these are serious assets, and they can do serious work when the business needs funds quickly.

A private first mortgage over commercial or industrial property puts that equity to use without the months of bank credit analysis. Here’s what lenders look at, how leases and GST come into it, and where a private loan fits.

What commercial and industrial property can secure a private first mortgage?

Most income-producing and owner-occupied non-residential property is in scope. What the lender focuses on varies by type:

Property type	What the lender looks at closely
Retail shops and strip centres	Location, foot traffic, current tenancy and how easily the space would re-lease
Offices and professional suites	Building quality, strata arrangements if any, vacancy in the surrounding area
Warehouses and logistics sites	Access for trucks, clearance, hardstand, proximity to arterial roads
Factories and workshops	Zoning, any specialised fit-out, how readily another user could take it over
Mixed-use buildings	The split between commercial and residential parts and how each would sell

Because no formal valuation is required, the lender works directly from the property’s details, photos, leases and title — and from its own understanding of what similar buildings sell for. That keeps things moving and removes the cost of a commercial valuation report.

Does it matter whether the building is leased or owner-occupied?

Both work. Each raises a different question.

Owner-occupied. If your own business trades from the building, the property and the borrower are tied together. The lender will want comfort that the exit doesn’t rely solely on the business turning around. A sale-and-lease-back plan, a refinance once results improve, or the sale of another asset can all answer that.

Leased to a third party. A tenant on a solid lease is a sign the property is wanted. The lender will ask for the lease and look at its remaining term, options and who the tenant is. Some leases are registered on title — a Queensland current title search, for example, shows registered interests including leases, easements, covenants, mortgages and caveats — so the title and the lease should tell the same story.

Partly vacant. That’s workable too, but the plan for the vacant space should be part of the conversation.

How do leases and GST affect a commercial exit?

If your exit is selling the property, GST belongs in your numbers from day one. The ATO says selling commercial premises is generally a taxable sale, so GST usually applies to the price, although the margin scheme can be used in some cases (only if the sale is taxable).

A sale can instead be GST-free as a going concern, but only if all of the ATO’s conditions are met — including that the sale is for payment, the buyer is registered for GST (or required to be), and both parties agree in writing that it’s a going concern. The ATO is clear that a property by itself isn’t a going concern; a tenanted building can qualify where the property and all leases, agreements and covenants are included in the sale.

Why does this matter to a lender? Because it changes how much of the sale price actually reaches the loan. Have your accountant confirm the treatment before you settle on the exit, and share the answer with the lender — it makes the plan more credible.

Illustrative example: funding growth against an industrial unit

Illustrative example: A Dandenong food manufacturer owns its warehouse, worth about $3m, with $900k still owing to a bank. A new supply contract needs $600k for a production line and extra stock, but the bank won’t lend more after a loss year. A private first mortgage of $1.5m pays out the bank and funds the expansion — an LVR of 50%. The 24-month term gives the new contract a full year to show in the accounts before a refinance back to a bank. Illustrative only, not a quote or lending policy.

If your building could fund the next stage of the business, send through a 60-second enquiry and a specialist will look at the property and the plan.

Why do commercial owners choose a private lender over a bank?

The usual reasons are speed, flexibility and the shape of the decision:

• The bank looks at the business; the private lender looks at the property and exit. A loss year or a restructure doesn’t automatically close the door.
• Timing. Funding is possible within 24–48 hours for up to $5m once documents are in — useful when a contract, an auction or an ATO deadline won’t wait.
• No formal valuation, which on commercial property can otherwise add real time and cost.
• Interest can be prepaid or capitalised, keeping cash in the business while the plan plays out.

The trade-off is that private loans are short-term and priced for that role. Our guide to private lender versus bank sets out when each one makes sense.

If you want to keep your existing commercial bank loan and only need extra funds, a second mortgage on commercial property may suit better. Owners with several buildings can also combine them — see using multiple properties as security. For how commercial security compares with a house or unit, read residential versus commercial security.

What should you prepare before enquiring about a commercial property loan?

A commercial deal moves fastest when the lender can picture the building and the plan from the first conversation. Have these to hand:

• the address, a short description of the building and recent photos;
• who owns it — you personally, a company or a trust — and who can sign;
• copies of any leases, with the rent, remaining term and options;
• a statement for any loan currently secured on the property;
• the business purpose of the funds and how much you need;
• your exit, with whatever evidence exists today, whether that’s an agent’s agreement, a contract, or your accountant’s view of when a bank refinance becomes realistic;
• if the exit is a sale, your accountant’s note on the likely GST treatment.

None of this needs to be polished. It simply needs to be accurate, because every figure feeds into how much the property can support.

See if you qualify against your commercial property

Your building has likely been quietly gaining equity for years. Finding out what it can do now won’t cost you a credit check — there isn’t one when you enquire — and your details won’t be shopped to a long list of lenders. A specialist who understands commercial property reads each enquiry.

Give accurate details about the building, who owns it, any tenants and what’s currently owing, and the answer you get back will reflect your real position from the start.

Check what your commercial property can fund — the enquiry takes about a minute.