It sounds obvious but often is not fully understood that different types of security represent different levels of risk to lenders.
When seeking a commercial property loan, box-standard commercial properties are often the best form of security that you can offer. Here are some examples.
- Offices.
- Factories.
- Warehouses (including showrooms and storage units).
- Retail space.
- Shopfronts.
- Residential (block of units, house, unit or townhouse).
Consider also the characteristics when offering these forms of security, namely that they have wide appeal, are in a good location and are zoned as residential, commercial, industrial or mixed.
Next you have specialised commercial properties. These are more difficult to value and sell, thus they are perceived by lenders to carry a higher risk. Examples of these are…
- Accommodation (backpacker, motel, hotel, resorts, bed and breakfast, caravan parks).
- Aged care centres and facilities.
- Car yards.
- Child care centres and facilities / pre-schools.
- Farms and other rural properties.
- Function and reception centres.
- Land subdivisions.
- Petrol stations.
- Commercial property developments (or residential).
- Pubs, hotels, bars and taverns.
- Restaurants and bistros.
- Vineyards, wineries, distilleries and breweries
- Landfill, garbage dump and waste management facilities.
- Supermarkets albeit not all lenders will consider these non-specialised.
- Private schools albeit again you’ll find some lenders with a different view on private schools.
- Recreation centres generally, unless you have a unique, revenue generating and demonstrably profitable plan for the property; in which case some lenders will look at them.
- Shopping villages and shopping centres.
Specialised properties will require a detailed valuation and risk assessment and often require you to have a sizeable deposit in order to obtain a loan approval.
Some commercial transactions involve buying only the leasehold, which is solely the right to occupy and run the business but does not include any rights to the freehold property itself.
In the event your property can be used in different ways, a lender may request an alternative use valuation. This can work for you but also against you and is a good indication of possible intent of the lender.
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.
