Quick answer
When a bank hesitates over a commercial building because of a short lease, a vacancy, a specialised use or the owner's financials, a private first mortgage can still lend against it. The decision rests on the property's value, its location and a clear exit, up to 70% of value on commercial security. We lend $20k to $5m for business purposes, with no formal valuation required and open terms.
Key points
- Built for the commercial properties banks find awkward, not just the easy ones
- Up to 70% of value on commercial security
- Short leases, vacancies and older buildings are assessed rather than declined
- The usual exit is a bank refinance once the building's story is fixed
- No formal valuation required, which removes a common commercial delay
- LVR
- Up to 70% of value on commercial security
- Amounts
- $20k – $5m
- Terms
- Open terms — repay early anytime with no penalty
- Valuation
- No sworn valuation — we assess value ourselves
Plenty of commercial property is easy to finance: a well-located shop with a long lease to a national tenant will find a bank happily. This page is about the rest. The building with eight months left on its only lease. The half-empty office. The former restaurant with a fit-out nobody else wants. The workshop owned by a business whose last tax return is overdue. A private first mortgage can lend against these buildings because the decision rests on the property’s value, its location and a credible way out, up to 70% of value on commercial security.
For the general overview of commercial and industrial first mortgages, including what types of building we accept, see commercial property first mortgages. Here we focus on the situations where a bank has already said no, or is about to.
Why do banks hesitate over commercial buildings?
The government’s business finance guidance notes that lenders assessing a loan usually want to see financial reports, cash flow statements, forecasts and lease agreements. On commercial property, banks lean especially hard on two of those: the income the building produces and the owner’s own figures. When either looks weak, the bank either declines, offers far less, or attaches conditions the owner can’t meet in time.
| What worries the bank | How a private first mortgage looks at it |
|---|---|
| Main lease expires within a year | What the building is worth with or without the tenant, and the exit |
| Partial or full vacancy | Location, re-leasing prospects and whether the exit relies on rent |
| Specialised fit-out or single use | How wide the buyer market is for the building as it stands |
| Older building needing work | Value in its current condition and any obvious compliance issues |
| Owner’s financials late or weak | Equity and exit carry the decision, not serviceability ratios |
| Regional town location | Depth of local demand; may mean lower lending, not a refusal |
| Mixed-use shop with a flat above | Assessed on the whole building; usually straightforward |
None of these is an automatic no for us. Each one is a question to answer.
What can a private first mortgage do that a bank won’t?
Three things, mainly.
Lend against the building as it is today. A bank often wants the problem fixed first: a new lease signed, the vacancy filled, the accounts lodged. A private first mortgage can fund now so the owner has the time and money to fix it.
Move quickly. There’s no formal valuation required, because we assess value ourselves. That removes the inspection booking and report wait that so often stretches commercial bank loans into months. Funding can happen in as little as 24 hours from a clean, complete application, though commercial loans with an outgoing bank usually take a little longer.
Run on open terms. No minimum, no maximum and no early repayment penalty, with interest capitalised for the first 6 months. The owner can refinance the moment the bank is comfortable again, without a break cost.
What happens when the bank won’t renew at expiry?
This is one of the most common reasons commercial owners call us. A commercial facility reaches its review date, and the bank decides not to roll it, or wants a large reduction. The owner has weeks, not months.
A private first mortgage pays the bank out at settlement and takes first position. The owner then has breathing space to re-lease, sell or rebuild the paper trail. Our page on when the bank won’t renew your facility covers the steps in detail. Ask your bank for the payout figure and its discharge requirements the day you decide to move, because the outgoing lender usually sets the pace.
Illustrative example: a lease running out
A Geelong couple own a two-storey shopfront in a busy strip, leased to a single café tenant whose lease ends in seven months. Their bank facility of $620k is up for review, and the bank won’t renew it until a new lease is signed. They also need $150k to pay a business tax debt.
Illustrative: the building is assessed at around $1.3m. At a 70% commercial ceiling, total lending could reach $910k. A private first mortgage of $800k pays out the bank’s $620k, sends $150k to the ATO at settlement and covers costs. Interest is capitalised for the first 6 months, so the building’s reduced income isn’t stretched by repayments. Once the café renews or a new tenant signs, the couple refinance to a bank. If neither happens within a sensible window, the fallback is selling the building, and they’ve discussed the GST position with their accountant up front. Figures are illustrative only.
Check your loan in about a minute if your building is in a similar spot.
How do you plan the exit from a commercial private loan?
Commercial exits need more thought than residential ones, because commercial buyers and banks both take longer. The common paths:
- Refinance to a bank once the issue is fixed: a new lease signed, vacancies filled, lodgements up to date. Ask a bank early what it will need to see.
- Sell the building. Allow realistic time for a commercial campaign and settlement. The ATO explains that a sale of a leased building can be GST-free as a going concern, but only where the conditions are met, including that the buyer is registered for GST and both parties agree in writing. If they aren’t met, GST may come out of the proceeds.
- Repay from business income or a sale of the business, where the timing is firm.
Our guide on exit strategy red flags shows the common traps.
Does adding other property help?
Often. A commercial building on its own supports up to 70% of value. If you also own a house or unit, adding it as security can lift what can be lent and make the whole loan more robust. Several properties can sit under one loan, and one can be released once the debt is reduced. See using multiple properties as security.
If your bank loan on the building is fine and you simply need extra funds, a second mortgage on commercial property may suit better than refinancing everything.
What should you have ready?
- the current lease or leases, and a rent roll if there are several tenants;
- the latest bank statement for the existing loan and any letters about its review;
- the council rates notice and any recent outgoings statements;
- company or trust documents if an entity owns the building;
- a short note on the problem the bank has raised and how you plan to fix it.
Bank getting nervous about your building? Find out your options
Commercial owners often hear “no” for reasons that have more to do with a bank’s checklist than the building itself. If your property has solid value and you have a plan, there may well be a path.
The loan check takes about 60 seconds and won’t touch your credit file. It goes to one direct lender and is never shopped around to a list of funders. A commercial specialist reviews the building, the lease position and your exit, then calls you to talk it through. Accurate details about the leases and the debt help us come back with a real answer quickly.
Frequently asked questions
Why would a bank refuse to lend on a good commercial building?
Banks look closely at income from the building and the owner's financials. A lease with months left to run, a vacancy, a single-purpose fit-out or late tax lodgements can all push a bank to decline or reduce the loan, even when the property itself is worth far more than the debt.
Can a private first mortgage refinance my commercial bank loan?
Yes. The new loan pays out the bank at settlement and takes first position. It's commonly used when a bank won't renew a commercial facility at expiry, or wants the loan reduced by more than the owner can manage in time.
Does the building need a tenant?
No. A vacant building can still secure a first mortgage. The exit just can't rely on rent that doesn't exist yet, so it is usually a sale, a refinance after a new lease is signed, or other business income.
What commercial properties are hardest to lend against?
Highly specialised buildings with a very narrow set of possible buyers, properties in very small towns, and buildings with serious compliance problems. They are still assessed case by case, but expect more questions and lower lending against them.
Is GST an issue when the exit is selling the building?
It can be. A sale of a leased building can be GST-free as a going concern if the ATO's conditions are met, but if they aren't, GST may come out of the sale proceeds. Factor that into the exit with your accountant before you borrow.
Can I combine a commercial property with my home as security?
Yes. Adding residential security can increase what can be lent and strengthen the whole loan. Several properties can sit under one loan, and one can be released later when the debt reduces.