The commercial finance guide.

Commercial loans are priced and sized on different metrics from residential ones. LVRs are lower (typically 65 to 75%), terms are shorter (3, 5 or 10 years), and lenders look closely at the Interest Cover Ratio: the asset's net rental income divided by the loan's interest expense. Most lenders want an ICR of 1.3x to 1.5x. Covenants such as debt service coverage tests, LVR triggers and financial reporting obligations are written into the facility. Breaching one is rarely a default in itself, but it always means a conversation with the lender you'd rather not have.

Lender appetite varies widely by asset class. Industrial and logistics property near ports and freeways is the strongest class right now, with a wide lender panel and competitive pricing. Office is two-tier: CBD grade A is well supported, while suburban office is harder. Retail depends on the tenant. Specialised assets (hotels, service stations, childcare, agriculture) go to the particular lenders who know those categories. Part of a broker's job is knowing which lender leads in each one.

Development deals are funded through a stack of senior debt, mezzanine, preferred equity and developer equity. Senior debt is the cheapest layer, at the lowest LVR. Mezzanine fills the gap between senior debt and equity at a higher rate, often with equity kickers. Preferred equity and pure equity sit at the top, carrying the most risk for the highest return. Structuring the stack well is specialist work. See our development finance page.