When should you use a commercial mortgage broker?

What does a commercial mortgage broker do?

A commercial mortgage broker assesses the proposed transaction, identifies suitable lenders from its approved panel and helps prepare and manage the application. The role can include:

• Understanding the property, borrower and commercial objective
• Assessing the broad strengths and pressure points of the transaction
• Comparing lender appetite, credit policy and available structures
• Explaining rates, fees, terms, covenants and security requirements
• Identifying the supporting documents likely to be required
• Preparing and submitting the application
• Responding to lender questions and coordinating the process through settlement

The lender makes the final credit decision. A broker cannot guarantee approval or make an unsuitable transaction acceptable, but can help direct an application to lenders whose criteria are better aligned with the circumstances.

When is a broker particularly useful?

Buying commercial or investment property

Commercial lenders may take different views of the same office, warehouse, retail property or specialised asset. Property type, location, valuation, tenant profile, lease term, borrower strength and loan-to-value ratio can all affect lender appetite and terms.

A broker can compare lenders that are comfortable with the particular property and determine how the purchase should be presented and structured.

Buying premises for your business

Where a business will occupy the property, the lender generally assesses both the real estate and the operating business. Revenue, profitability, cash flow, industry conditions, existing debt and the proposed property costs may all be relevant.

A broker can bring those elements together and compare lenders that actively support owner-occupied commercial property.

Refinancing an existing commercial loan

A refinance may be considered when a facility is approaching expiry, the business has improved, additional funding is required or the current structure no longer suits the borrower. The comparison should consider more than the advertised interest rate.

• Interest rate and total fees
• Remaining and proposed loan term
• Repayment structure
• Covenants and annual-review requirements
• Valuation and security requirements
• Flexibility to repay or restructure
• Discharge, break or exit costs

Sometimes retaining the existing lender is the better outcome. The value of a broker review is in testing that position rather than assuming a refinance will always be beneficial.

Funding a property development

Development finance is a specialised area. Lenders may assess approvals, construction costs, contingency, builder strength, developer experience, equity contribution, projected end values, presales, timing and exit strategy.

Different lenders have different appetites for project size, location and risk. A broker experienced in property development finance (https://www.3lane.com.au/services/property-development-finance) can identify suitable funders and help prepare the feasibility and supporting project information.

Purchasing commercial property through an SMSF

SMSF commercial property borrowing must operate within the fund's legal and superannuation structure, and lender participation and criteria vary. The finance application may involve the fund, trustees, holding trustee, property and related operating business.

A broker can manage the lending component and work alongside the trustees' accountant, licensed financial adviser and solicitor. Read more about SMSF commercial property lending (https://www.3lane.com.au/services/smsf-loans).

When the borrower does not fit a standard lending profile

A business may have a short trading history, seasonal income, multiple entities, recent ownership changes, rapid growth or financial statements that require explanation. One lender may be unable to consider those circumstances while another has a policy pathway that permits a fuller assessment.

A broker can assess those factors before deciding where to submit the application, reducing the risk of unnecessary approaches to lenders with unsuitable policy.

When the transaction is time-sensitive

Commercial purchases may involve finance dates, auction conditions, option expiries or firm settlement deadlines. No broker can guarantee a lender's approval time, but early document preparation and lender selection can reduce preventable delays.

When comparing several lending options

Commercial finance cannot always be compared using a headline interest rate. Two facilities with similar rates may differ materially in term, fees, amortisation, covenants, annual reviews, security, repayment flexibility and exit costs.

A broker can compare the whole facility and explain how those differences affect the borrower's objectives and longer-term plans.

Does using a commercial mortgage broker cost more?

Broker remuneration varies. A lender may pay commission when a loan settles, and a broker may also charge a client fee for certain transactions, particularly where the work is complex or specialised.

Before proceeding, ask which fees are payable, how the broker will be remunerated and whether any costs apply if the transaction does not settle. The commercial benefit should be assessed against the broker's scope, lender access and the work required.

What should a broker ask you?

A commercial broker should understand more than the requested loan amount. Expect questions about:

• What you are buying or refinancing
• Why the finance is required
• The amount and proposed equity contribution
• Business financial performance and cash flow
• Existing business and personal debts
• Ownership and entity structure
• The property and other available security
• Preferred repayment structure and facility term
• Transaction deadlines
• Longer-term ownership, investment or exit plans

A business buying a warehouse to occupy for the next 15 years may have different priorities from an investor acquiring a tenanted property or a developer intending to sell completed stock. The finance structure should reflect the underlying objective.

What should you look for in a broker?

• Demonstrated experience with the relevant property and transaction type
• A suitable panel of banks, non-bank and specialist lenders
• A clear explanation of lender selection and trade-offs
• Transparent fees and remuneration
• A structured document and application process
• Realistic communication about risks, timing and approval

When should you speak to a broker?

Ideally, speak to a broker before signing an unconditional contract, making an auction purchase or committing to a finance structure. Early engagement provides time to assess borrowing capacity, compare lenders, prepare information and address potential valuation, serviceability or ownership issues.

A broker can still assist once a transaction is underway, but available options may narrow as deadlines approach.

Compare the whole finance structure

3LANE Finance works with business owners, property investors and developers to compare commercial lending options and prepare transactions for assessment.

Talk to a 3LANE commercial mortgage broker

Important information: This article provides general information only and does not constitute financial, legal, tax or accounting advice. Lending criteria, pricing and availability vary between lenders and are subject to assessment and approval.