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TL;DR: The Fast-Track to Approval
Getting a “yes” for commercial construction finance is more of a marathon than a sprint. Lenders aren’t just looking at the property; they’re looking at the person, the plan, and the protection.
- Experience counts: If it’s your first rodeo, you’ll need a pro team to back you.
- Skin in the game: Expect to provide 20-35% equity (hint: you can use other property as security).
- The “Exit”: Lenders don’t want to own your building; they want to know how you’ll pay them back.
- Feasibility is king: Your numbers must be airtight, including a healthy contingency.
Building a commercial asset is a different beast compared to buying a standard residential home. While a residential lender might give you a thumbs up based on your salary and a quick valuation, commercial lenders are essentially looking to become your silent (and very detail-oriented) business partner.
Whether you’re looking into commercial property loans for a new warehouse or developing a boutique office block, the scrutiny is high. But don’t let the paperwork mountain intimidate you. At Baseline Finance, we specialise in demystifying this process.
Here are the five non-negotiables lenders need to see before they sign on the dotted line.
1. A Proven Track Record (or a Very Strong Team)
Lenders are risk-averse by nature. They want to know that if things get sideways: as they often do in construction: you have the experience to navigate the storm.
If you’ve successfully completed three similar projects in the last five years, you’re the lender’s dream. However, if this is your first commercial development, don’t panic. You can “borrow” experience by surrounding yourself with a blue-chip project management team, a reputable builder, and an experienced broker.
Lenders will look at:
- Your history of delivering projects on time and on budget.
- Your financial stability outside of this specific project.
- The industry reputation of your key consultants.
2. Real Equity and Strategic Presales
In the world of commercial development, “no deposit” isn’t a phrase you’ll hear often. Lenders want to see significant “skin in the game.” Typically, this means an equity contribution of 20% to 35% of the total project costs.
Pro Tip: If you’re short on liquid cash for the deposit, don’t assume the deal is dead. One of the most effective strategies is using equity in another property: be it your home or another commercial asset: as additional security. This can bridge the gap and keep your cash flow healthy for the build phase.
For larger projects, lenders might also require a certain level of “presales” or “pre-leases.” This proves there is genuine market demand for your project. If you’ve already secured tenants for 50% of the space, the lender’s risk drops significantly, and your chances of a lower interest rate go up.
3. Detailed Costings and Iron-Clad Feasibility
“I think it will cost about $2 million” is a quick way to get your application moved to the bottom of the pile. Lenders require a granular breakdown of every cent.
This includes:
- Hard Costs: The actual bricks, mortar, and labour.
- Soft Costs: Architecture fees, council rates, permits, and marketing.
- Contingency: Usually a minimum of 5-10% of the construction cost to cover the “unexpecteds” like material price hikes or weather delays.
At Baseline Finance, we help our clients prepare a Strategic Funding Plan. This provides a benchmarked roadmap within 7 days, ensuring your feasibility study isn’t just a best-guess, but a professional document that stands up to bank-level interrogation.
4. The Quality of Your Build Team
The lender isn’t just lending to you; they are indirectly lending to your builder. If the builder goes bust halfway through the project, the lender is left with a half-finished concrete shell that is incredibly hard to sell.
Lenders will perform their own due diligence on your builder, looking for:
- A valid and clean license.
- Appropriate insurances (Public Liability, Workers Comp, and Contract Works).
- A “Fixed Price” or “Guaranteed Maximum Price” (GMP) contract.
- Strong financial statements proving they have the liquidity to finish the job.
5. A Solid Exit Strategy
This is arguably the most important question a lender will ask: “How do we get our money back?”
Commercial construction loans are generally short-term (12 to 24 months). You need a clear plan for what happens when the dust settles and the keys are handed over. Your exit strategy usually falls into two categories:
- The Sale: You sell the completed units or the entire building to pay off the debt and pocket the profit.
- The Refinance: You move the construction debt into a long-term commercial investment loan, often using the rental income from tenants to service the new loan.
Lenders will want to see “Take-out Finance” scenarios. If you plan to hold the property, you’ll need to demonstrate that the projected rental yield comfortably covers the long-term debt.
The Baseline Difference
Navigating the maze of LVRs, GRVs, and progress draws can feel like learning a second language. That’s why we act as your single point of contact. From the first feasibility check to the final progress payment, we handle the lender negotiations so you can focus on the build.
Terms to Know
- LVR (Loan to Value Ratio): The amount you are borrowing compared to the value of the property.
- GRV (Gross Realisation Value): What the project is worth once it is 100% finished.
- Progress Draws: Payments made by the lender to the builder at specific stages of the build (e.g., slab down, lock-up).
- Hard Costs: Direct construction costs.
- Soft Costs: Indirect costs like legals, interest, and design.
Ready to get your project off the ground?
Don’t leave your funding to chance. Contact the team at Baseline Finance today for a Strategic Funding Plan that gives you the clarity to move forward with confidence.
Contact us on 08 6108 3925 or email commercial@baselinefin.com.au
