Applying for a commercial property loan can feel overwhelming, filled with paperwork, financial calculations, and decisions that can make or break your business’s future. If you’re not careful, simple mistakes can cause delays, added costs, or even rejection of your loan application. Whether this is your first time navigating commercial property financing or you’re a seasoned investor, it’s important to be aware of the potential mistakes.
That’s where we come in. Unconditional Finance has seen all the common mistakes that borrowers make—and we’re here to help you avoid them. With the right guidance, you can secure a loan that fits your needs and set your business up for long-term success. In this blog, we’ll guide you through the top 9 mistakes people often make when applying for a commercial property loan. This way, you’ll be prepared and can go through the process with confidence.
Mistake 1: Skipping Pre-Qualification
You’ve found the perfect property, and the excitement kicks in. It’s tempting to jump straight into the commercial loan application process, but skipping pre-qualification can quickly put a damper on your plans. Pre-qualification for a loan helps you know where you stand financially, and it’s a great way to set realistic expectations before you start house hunting. Without it, you might be aiming for properties that are out of your budget—or worse, miss out on ones that are perfect for you because you weren’t fully prepared.
Why is this important? Lenders want to see that you’re serious. Being pre-qualified not only shows them that you’re ready but also gives you a clearer picture of what you can afford. It’s like trying on clothes before buying them—you want to know they’ll fit before you take them home!
Wondering how to get pre-qualified? Reach out to us today, and we’ll guide you through the process step-by-step!
Mistake 2: Underestimating Costs
It’s easy to look at the price tag on a property and think that’s the amount you’ll be paying, but commercial property loans come with a host of other costs that can sneak up on you if you’re not prepared. From appraisal fees to legal costs, and environmental surveys to inspection fees, the list can be long.
For instance, let’s say you’re eyeing a property for $500,000. Beyond the down payment, you could be looking at thousands more in additional fees. Not accounting for these costs can leave you financially strained or even put your loan approval at risk if lenders think you don’t have enough reserves.
How can you avoid this? Be thorough when calculating costs. Ask your broker for a detailed breakdown, and don’t forget to budget for contingencies. We always recommend setting aside at least 10% to cover these “hidden” costs.
Mistake 3: Not Shopping Around for Rates
One of the biggest mistakes we see? People locking in the first rate they’re offered. Commercial property loan rates can vary greatly from lender to lender, and even a small difference in rates can add up to huge savings (or costs) over the life of your loan.
Would you buy the first car you saw at the dealership without checking a few others first? Probably not. The same goes for your loan. Different lenders offer different terms, interest rates, and fees, so it’s important to compare options before making a decision.
Pro tip: You don’t have to do it all yourself! As mortgage brokers, we’re experts in this area and can shop around on your behalf, ensuring you get the best deal without all the legwork.
Let us do the heavy lifting for you! Speak with us today, and we’ll help you find the best rate for your commercial loan.
Mistake 4: Ignoring Loan Covenants
Loan covenants might sound like complicated legal terms, but they’re really important. These are the rules set by the lender, and if you don’t follow them, it could lead to some serious consequences down the line. Covenants can include things like keeping a certain balance between your debt and assets or limiting how you use the property for business.
Let’s imagine your lender has a covenant that requires you to maintain a certain level of income from your property. If your business takes a hit and you can’t meet this requirement, your lender might call in the loan, leaving you scrambling.
How to stay on top of this: Always ask about the loan’s covenants upfront and make sure you fully understand them before signing anything. If something isn’t clear, don’t be afraid to ask questions. It’s better to clarify now than face the consequences later.
Mistake 5: Not Having a Clear Business Plan
Applying for a commercial property loan isn’t just about the property itself—lenders also want to know how it fits into your overall business plan. If you go into the meeting without a clear or complete plan, it could hurt your chances of getting approved. Lenders need to feel confident that you have a clear vision for how the property will generate income and be a sustainable investment.
For example, if you’re purchasing a building to rent out to other businesses, be prepared to explain how you’ll find tenants, manage the property, and maintain occupancy levels. If you’re buying for your own operations, lenders will want to know about your business’s financial health and future prospects.
How to avoid this mistake? Take the time to create a solid business plan. It should include financial projections, market research, and a clear strategy for the property’s use. The more concrete your plan, the more likely lenders are to feel secure in lending to you.
Mistake 6: Overlooking Your Creditworthiness
Yes, it’s a commercial loan, but your personal credit score still matters. Many applicants assume that only the business’s financials matter, but lenders will often look at your personal credit history as well—especially if you’re a small business or applying for the loan as an individual. A low or poor credit score for business loans can lead to higher interest rates or even disqualification.
How to avoid this mistake? Before applying, check your personal and business credit scores. If your score isn’t as good as you’d like, consider taking steps to improve it before submitting your application. Simple actions, like paying down debt or resolving any errors on your credit report, can make a big difference.
Mistake 7: Applying Too Late
Timing is everything. Waiting until the last minute to apply for a loan, especially if you’re facing tight deadlines, can cause unnecessary stress. The loan approval process can take weeks or even months, depending on how complicated the deal is. If you apply too late, you might miss out on the property.
Our advice? Start the loan process early. Give yourself enough time to handle any unexpected issues that may arise. The earlier you begin, the smoother the process will be.
Don’t wait until it’s too late! Contact us early, and we’ll help you streamline the application process so you don’t miss out on your dream property.
Mistake 8: Being Unprepared for Documentation
Commercial property loans require a significant amount of paperwork—far more than a residential loan. You’ll need financial statements, tax returns, proof of income, and a business plan, just to name a few. Missing documents or incomplete information can delay the process or even lead to rejection.
What should you do? Stay organised and start gathering your paperwork well in advance. Create a checklist of required documents and work closely with your lender or broker to ensure you have everything in order.
Mistake 9: Failing to Plan for Financial Stability and Growth
It’s easy to be tempted to borrow as much as possible to secure the perfect property, but overextending yourself financially can be dangerous. If your revenue drops or unexpected costs arise, you may struggle to meet your repayment obligations, putting your property and business at risk.
Additionally, not thinking about future growth can create problems. If your business expands faster than expected or the property needs upgrades, you could find yourself needing more funds than you planned for, which may lead to costly refinancing or loan adjustments.
How to Avoid This: Be realistic about your current financial capacity, leaving room for both stability and growth. Ensure that your loan structure is flexible enough to support future business expansion without risking your financial health. It’s always better to be conservative with your borrowing while planning for potential growth in the future.
Why Avoiding These Mistakes Matters
Avoiding these nine mistakes can make a huge difference when trying to secure the right commercial property loan for your business. By being proactive—whether it’s starting early, budgeting for all the costs, or preparing the right documents—you’ll save yourself time, money, and a lot of unnecessary stress. Remember, securing a loan doesn’t have to be overwhelming when you know what to watch out for.
We’re here to help you every step of the way, making sure you avoid these pitfalls and get the best loan possible for your needs. Ready to take the next step? Let’s chat about how we can support you in making smart, informed decisions for your business’s future. Your success is our priority, and we’re excited to be part of your journey!
FAQs on Commercial Property Loan Applications
When deciding on the best loan structure, it's important to assess your business's cash flow and growth projections. For example, would a fixed or variable interest rate work better? Or maybe an interest-only loan for the first few years would give you more flexibility? As brokers, we can help you assess your business's needs and recommend the right loan structure—whether you need a short-term option to manage cash flow or a long-term plan for a big investment. We’ll ensure your loan fits your future goals.
In Australia, there are different types of commercial property loans you can choose from, like traditional commercial mortgages, lines of credit, and development loans. Each one serves a different purpose. For example, if you’re expanding your business by buying a new property, a traditional mortgage might be the right fit. But if you’re building or developing new properties, a development loan could work better.
Yes, you can negotiate! Loan offers aren’t set in stone. There are chances to negotiate for better terms, like lower interest rates, reduced fees, or more favourable covenants. As brokers, we specialise in negotiating with lenders to get you the best deal possible. Since we have relationships with many lenders, we can use that to your advantage, ensuring the loan is tailored to fit your needs and budget.
If you encounter financial difficulties, the key is not to panic. Contacting your lender as soon as possible is essential—most lenders are open to working out alternative payment arrangements, especially if you’ve been proactive. Depending on the situation, you might be able to restructure the loan or extend the repayment terms. As your brokers, we can help you communicate with the lender and explore options like refinancing to ease the financial strain.
The commercial loan approval process can take anywhere from several weeks to a few months, depending on the complexity of the deal and how quickly you can provide the necessary documentation. To speed up the process, it's essential to stay organised and respond to lender requests promptly. Having all your financial documents, tax returns, and business plans ready before applying will help things move faster.
