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What deposit do you need for a commercial property?

By Greg Bell

When it comes to financing a commercial property, your lender may offer you several different options. Depending on your planned use for the commercial property, your credit, what you have as a guarantee and how much of a deposit you will need, you may find it makes more sense to choose a commercial property loan or commercial line of credit.

The loan best suited to your needs will depend on whether you are buying commercial property as an investor or a business owner. Will you be seeking a tenant for your new commercial property, or will you be setting up shop in it yourself?

Commercial loan deposits

While a residential home loan typically only requires a 20% deposit (and sometimes as little as 10%), a commercial loan deposit will usually start at around 30% and potentially go up to 40% or more. This is because commercial property can be seen as a riskier proposition for the lender.

With a home loan, the assumption is that you will be living in it yourself or renting it to a residential tenant, the latter of which is generally easier to find. But with a commercial property, you may experience longer periods of non-tenancy, which could make it harder for you to keep up on your loan payments. However, while residential investments are seen as safer, commercial investment properties can bring in twice the revenue once a reliable tenant is in place.

Ways to lower your deposit

You can offer up assets such as residential property – like your home or a rental property – as security on your commercial loan. You can also prepare a solid business plan to show the lender that your commercial goals represent a risk worth taking. If you have substantial deposits and a good track record with a lender, this may also work in your favour.

A commercial property line of credit could be a good alternative to a conventional loan. It will provide funding up to a predetermined limit, and you will only pay interest on the funds drawn down if you purchase a property in need of work, this may be a good choice.

Remember that you can demand in your tenancy contract that the tenant pays maintenance fees, so your expenses can be lower. However, you'll have to pay the GST (goods and services tax), which can be as much as 10% of the property's purchase price. You can claim the GST back later as an 'input tax credit' against GST charged on the property revenues.

However you structure your commercial loan, Ray White Surfers Paradise experts can help you find the perfect commercial property for your needs.

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