COMMERCIAL LOAN CASE STUDY

Executive Summary

Mortgage Corp helped two business owners purchase their business premises from their landlord at a discounted price. With most lenders only willing to extend a commercial loan for a maximum of 70% of the value of the property, we managed to find a lender who was willing to go as high as 80% LVR. This allowed our clients to secure the property and saved approx. $2,000 per month through paying mortgage repayments instead of rent.

Client at a glance

Overview

Clients: Alex and Tina, Mortgage Corp clients since 2014

Marital status: married empty nesters, kids have moved out of home

Income: self employed for 20yrs+, income varies from year to year based on their accountant’s advice, roughly $150k on average

Occupation: business owners in health food manufacturing

Suburbs of business premises: Wantirna VIC 3152

Objective: find a business loan that would allow their company to purchase the business premises which they had been leasing from the owner/landlord, and which they could lease back to the business to pay off the loan

Results: found a lender willing to extend a commercial business loan for 80% of the value of the property plus saved almost $2,000 per month on mortgage repayments on the business loan compared to rent

Background

Alex and Tina had owned and operated their health food business for over 20 years and from the same business location for the last 10 years. Their business was profitable and they were selling their products both locally and internationally. They employed a few long term staff and were continuing to grow year on year.

Their office and warehouse were located in Wantirna in the eastern suburbs of Melbourne. The suburb of Wantirna is approximately 8 square kilometres in size and has many professional families living in the area, with 24 parks covering nearly 6% of the total area of the suburb. The suburb has experienced some good growth in the last few years, with the median house price now $1,030,000. Households pay an average of $1800 – $2400 per month on mortgage repayments.

The Challenges

Alex and Tina were offered the opportunity to purchase the office/warehouse from their landlord. It made sense from a business perspective to buy the building in order to ensure they controlled the premises, however, there were a number of challenges in getting a commercial loan for the purchase. In particular, they had a limited deposit – they only had enough funds to cover stamp duty and a 20% deposit (on a $1.1 million purchase price). However, most commercial lenders are only willing to approve commercial loans for a maximum of 70% loan-to-value ratio. In addition, their most recent company tax returns had not been completed making it difficult to provide proof of income to lenders.

Objectives

• Purchase warehouse/office from the owner/landlord and lease it to the business to help pay off the commercial business loan and grow the assets in the company
• Find a lender willing to extend a business loan at 80% LVR, rather than the industry standard of maximum 70% LVR, notwithstanding they weren’t able to provide their latest tax returns

The Solution

When Alex and Tina came to see us we were aware that one of our lenders had a special policy relating to commercial business loans which allowed certain clients to purchase commercial property on 25 year loan terms at 80% LVR.

With the relevant documentation collected and submitted by us, their commercial loan was approved within a week. By showing the lender that Alex and Tina’s business was profitable, the amount of rent the business had been paying over the last 10 years, and their intention to continue to rent the property for the next 10 to 15 years, the lender approved a 15 year loan of $1 million – with a 5 years interest-only term as well.

Results

• Purchased their business premises from their landlord, to ensure their business can prosper without any interruption and building their company’s asset value

• Paid almost $2,000 per month less in mortgage repayments on their commercial loan of $4,700 per month compared to rental payments of $6,500 per month, providing them with additional cash flow to grow their business
• They plan to continue to expand their business and look at offices and warehouses to purchase around the country and overseas

Note: for privacy reasons, names used in this case study are not real client names.

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What's Next?

Keep reading 5 Tips For Financing Your First Commercial Property Loan

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