In Australia, the National Consumer Credit Protection (NCCP) Act does not cover (read regulate) commercial property loans that are used for business or investment purposes. The exception to this can be residential investment properties
What this means is that most commercial borrowers will not have the same protection as, for example, a home buyer.
Be abundantly aware that the purpose of your commercial property loan will directly affect how your loan is assessed by the lender. Here are some examples and the suggested associated risk factors.
Investment (considered a low risk loan): You intend to buy or refinance a commercial property that you will lease, or better still is already leased with a long-term lease in place.
Owner-occupier property (this is considered a medium risk loan): You wish to buy or refinance a commercial property that is leased to your own business or occupied by your own business. This can also be seen as a higher risk depending on how you are assessed as a person.
Working capital (considered to be high risk): You are looking for funds to finance the day to day operations of your business or cover the business’s liquidity shortfalls. This one should be obvious why it is high risk. Unless you have something very strong to back up the liquidity issue or why you are unable to sell your way out of the problem, this has red flags all over it.
Other purposes: Generally, everything else in commercial lending, whether for commercial, business or investment purposes are considered on a case by case basis, e.g. buying a professional practice or any other business for that matter.
Remember, it is not a question of what assets your commercial property loan is secured by that will determine the purpose of the loan. It is what the commercial property loan is intended to be used for.
Always use caution when using a commercial property as security for a loan that is not used for business or investment purposes. Examples of this are buying a residential dwelling for the purpose of occupation and using your office building as additional security. In this scenario, in Australia the loan would be regulated under the NCCP Act, and you will find that many commercial lenders will not be able to give approval for funding your application.
About Greg Huxley
You can find out more about the author Greg Huxley at the Huxley Corporate website www.huxleycorporate.com
Disclaimer:
This article does not provide any financial, legal, tax, investment or any other form of advice, professional or otherwise upon which you should or can rely. Seek your own professional advice for personal and business matters.
