Unlock the secrets to financing an industrial estate

Financing an industrial estate involves a different set of criteria than residential property loans.

Commercial property finance assesses income-generating potential, tenant quality, and zoning rather than personal income alone. Lenders typically advance between 50% and 70% of the property's value, meaning you'll need a deposit of 30% to 50% of the purchase price. Interest rates are generally higher than residential mortgages, and loan terms are structured around the business case rather than personal serviceability alone.

The distinction matters because the lender's primary concern is whether the property generates enough rental income to cover the loan repayments. If you're buying an industrial estate in or near Kooyong, where properties typically attract tenants in light manufacturing, warehousing, or trade services, the lender will examine existing lease agreements, tenant covenant strength, and the property's location relative to transport links and industrial demand.

Commercial LVR and deposit requirements

Commercial LVR typically caps at 70%, though some lenders will advance up to 80% for well-tenanted properties with strong covenants. The difference between 70% and 80% LVR often depends on whether the property is fully leased to a single creditworthy tenant on a long-term agreement, or has multiple tenants with shorter leases. The lower the perceived risk, the higher the LVR a lender may offer.

Consider a buyer looking at a small industrial estate near Kooyong's light industrial zones, close to Glenferrie Road. The property comprises three warehouse units, each leased to separate businesses on two-year agreements. The buyer negotiates a purchase at $2.4 million. At 70% LVR, the loan amount would be $1.68 million, requiring a deposit of $720,000 plus settlement costs. If the property were leased to a single national tenant on a five-year term with options, the buyer might secure 75% LVR, reducing the deposit to $600,000. That difference of $120,000 affects cash flow and the buyer's ability to pursue additional acquisitions.

Interest rate structures for commercial property loans

Variable interest rates on commercial property loans sit above residential rates, typically starting around 1.5% to 2.5% higher depending on the lender and the property's risk profile. Fixed interest rates are available for terms between one and five years, and some buyers opt for a split structure to balance rate certainty with the flexibility of a variable component that allows additional repayments or redraw.

A split loan structure might involve fixing 60% of the loan amount for three years to lock in repayments, while the remaining 40% stays variable. This approach provides predictable repayments on the majority of the debt while retaining access to redraw or offset on the variable portion. The choice depends on your cash flow requirements and whether you plan to make lump sum repayments from business profits or refinance within a few years as the property's value increases.

Lenders offering commercial property loans also assess the property's location and the strength of the tenant base when setting the interest rate. An industrial estate in Kooyong with long-term tenants and proximity to major arterials like Toorak Road and Gardiners Creek Reserve may attract more competitive pricing than a similar property in a less accessible suburb.

Loan structure and repayment terms

Commercial loans are typically structured with interest-only periods of one to five years, followed by principal and interest repayments over the remaining loan term, which is usually 15 to 25 years. Interest-only repayments reduce the monthly outgoing, allowing the buyer to direct cash flow toward other business needs or property improvements.

Flexible repayment options may include the ability to make additional repayments without penalty on the variable portion of the loan, or access to a redraw facility if you need to access those funds later. Some lenders also offer a revolving line of credit secured against the property, which functions like a business overdraft and can be useful for managing short-term working capital needs or funding minor refurbishments between tenancies.

For buyers planning to develop or subdivide the industrial estate in future, a loan structure that allows progressive drawdown or includes an option to refinance into commercial development finance may be worth considering at the outset. Establishing this flexibility early avoids the need to refinance prematurely or pay break costs on a fixed rate loan.

The role of property valuation and tenant covenants

Commercial property valuation is based on the income the property generates, not just comparable sales. The valuer will assess the net rental income, lease terms, tenant creditworthiness, and the property's condition and location. A higher net yield and stronger tenant covenant will support a higher valuation, which in turn increases the loan amount available at a given LVR.

If the industrial estate has vacant units or short remaining lease terms, the valuation may be lower because the lender perceives higher risk. In that scenario, you may need to provide a larger deposit or demonstrate a clear plan to secure new tenants before settlement. Some lenders will consider pre-settlement finance to bridge the gap if you're confident of leasing the property quickly after purchase.

For buyers in Kooyong, proximity to Glenferrie Road's commercial precinct and the area's appeal to small-to-medium businesses in professional services and light industry can positively influence both tenant demand and valuation outcomes. The local demographic skews toward business owners and executives, many of whom value well-maintained industrial spaces within a short commute of Kooyong's residential areas.

Structuring finance for business property or investment purposes

The way you structure ownership and finance depends on whether you're buying the industrial estate as an investment, to house your own business, or a combination of both. Holding the property in your own name may allow you to access residential-style lending if you occupy part of the premises, though most lenders will treat any commercial property as a commercial loan regardless of ownership structure.

If you're buying through a company or trust, lenders will require company financials, director guarantees, and sometimes personal asset disclosure. Business loans secured against commercial property may also be structured as a secured commercial loan with the property as collateral, or as part of a broader facility that includes equipment finance or working capital.

For buyers looking to expand an existing business by purchasing their operating premises, the loan structure might include a component for fit-out or equipment alongside the property acquisition. Some lenders offer equipment finance as part of the same facility, allowing you to consolidate repayments and streamline the approval process.

Pre-settlement considerations and settlement costs

Settlement costs for commercial property purchases are higher than residential transactions. Expect to pay stamp duty at commercial rates, legal fees for contract review and settlement, valuation fees, and potentially building and pest inspection costs. In Victoria, stamp duty on commercial property is calculated at a higher rate than residential property, and there are no concessions for first-time buyers or owner-occupiers.

You should also factor in loan establishment fees, which can range from $1,000 to $3,000 depending on the lender, and any ongoing fees such as annual package fees or valuation review fees. If you're securing the loan through a commercial finance and mortgage broker, their service is typically paid by the lender, though it's worth confirming upfront whether any fees apply.

Pre-settlement finance is sometimes used to secure a deposit or fund initial works before the main loan settles, particularly if you're buying at auction or need to move quickly in a competitive market. This short-term facility is repaid once the primary commercial loan settles, and interest is usually capitalised or paid monthly depending on the term.

When to refinance or restructure your commercial loan

Commercial refinance becomes relevant when interest rates have moved in your favour, your property's value has increased, or your business circumstances have changed. If the industrial estate has appreciated or you've secured stronger tenants on longer leases, you may be able to refinance at a higher LVR and release equity for further investment or business expansion.

Refinancing also makes sense if you're moving from interest-only to principal and interest repayments and want to reassess your loan structure. Some buyers refinance to consolidate multiple properties or business debts into a single facility with more flexible terms, or to switch from a fixed rate to a variable rate as market conditions shift.

When refinancing a commercial property in Kooyong, the lender will conduct a new valuation and reassess the tenant profile. If the property is performing well and the area's industrial market remains strong, you may secure better terms than your original loan. Working with a broker who has access to commercial loan options from banks and lenders across Australia ensures you're comparing the full range of available products rather than relying on a single lender's assessment.

Call one of our team or book an appointment at a time that works for you. We can review your circumstances, structure finance options tailored to your industrial estate purchase, and support you through valuation, approval, and settlement.

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