The short answer
A commercial loan is money lent to a business for a business purpose. In New Zealand the term covers two broad things: a commercial mortgage, which is secured by a registered mortgage over property, and other business lending, which may be secured over the business's assets or not secured at all.
If your business fits a bank's criteria and you have time for its process, a bank is usually the cheapest place for a long commercial mortgage. Private lenders such as HomeSec cost more, but can lend where a bank will not, or settle in days rather than weeks, when there is a clear plan to repay.
Commercial loans, commercial mortgages and business mortgages
Lenders and borrowers use these names loosely, so it helps to be clear which one you mean.
- Commercial mortgage. A loan for a business purpose secured over property: buying premises, refinancing existing lending, or releasing equity to fund the business. The property can be commercial premises, such as an office, shop, warehouse or industrial unit, or residential property owned by the business owners.
- Business mortgage. Often used to mean the same thing, and often used when owners borrow against their own home or an investment property to fund their business.
- Commercial business loan or term loan. A loan to the business itself, commonly secured by a general security agreement over its assets and backed by personal guarantees from the directors. Unsecured business loans lean on trading history and credit instead of security.
- Commercial finance. A wider term that also takes in overdrafts, invoice finance and asset or equipment finance.
What lenders look at
- The property. Its type, location, condition and how easily it could be sold. For commercial premises, lenders also look at the lease, the tenant and the rent the property earns. Lenders usually lend a smaller share of a commercial property's value than of a home's, because commercial property can take longer to sell.
- Loan to value. Total lending secured on the property compared with its value, including any first mortgage that stays in place.
- The business. Trading history, financial statements, cash flow and its tax position, including any IRD arrears.
- The owners. Credit history, other debts and whether they will give personal guarantees.
- The purpose and the exit. What the money is for and how the loan will be repaid: business cash flow, the sale of a property, or a refinance.
The Reserve Bank's loan-to-value restrictions are rules for banks' new lending on residential property. Commercial lending limits are set by each lender's own credit policy, so they vary much more from one lender to the next.
How to get a commercial loan in New Zealand
- Be specific about the need. The amount, what it is for and the date you need it by.
- Know your security. The property address, who is on the title, an estimated value and what is owing on it, and to whom.
- Gather your documents. Banks commonly ask for two or three years of financial statements, recent management accounts, cash flow forecasts, your IRD position and a registered valuation. For commercial premises, have the lease ready too.
- Plan the exit. Show how the loan will be repaid, and what happens if that takes longer than expected.
- Ask your bank first if time allows. If it says no, or cannot meet your deadline, a broker or a non-bank or private lender may be able to help.
- Compare offers on total cost. Look at every fee and the total amount you will repay over a realistic timeline, not just the rate. Our guide to business loan interest rates in NZ sets out what to check.
- Get advice before you sign. A loan used mainly for a business purpose is generally not a consumer credit contract, so many consumer lending protections will not apply. Ask a lawyer to review the contract and your accountant how it affects tax and cash flow.
Why a bank may say no
Being declined by a bank does not always mean the business is a poor risk. Common reasons include:
- a short trading history, or a start-up with no financial statements yet
- a recent loss or a difficult year
- IRD arrears or a credit default
- property that is specialised, rural or in a smaller provincial town
- borrowing more against the property than the bank's policy allows
- a deadline the bank's credit process cannot meet
A private lender looks mainly at the property, the purpose and the exit, so it can often help in these situations. Expect to pay more for that flexibility, and make sure the plan to repay is realistic.
Buying commercial premises: GST and timing
When a GST-registered seller sells property to a GST-registered buyer who intends to use it to make taxable supplies, and it is not intended as a home for the buyer or a relative, the sale is generally zero-rated for GST. Those conditions are tested at settlement. If they are not met, GST at 15% applies, which changes how much you need to fund on the day. Confirm the GST position with your accountant and lawyer before you sign the sale and purchase agreement.
Settlement dates are fixed. If the bank's approval, the sale of another property or a refinance will not be ready in time, business bridging finance can settle the purchase and be repaid when that event happens.
Where HomeSec fits
HomeSec is a direct, privately funded New Zealand lender. We lend $20,000 to $1,000,000 for genuine business purposes on open-term facilities, secured by a first mortgage or a second mortgage over suitable residential or commercial property. We lend against suitable property almost anywhere in New Zealand, and you can repay early at any time.
Business owners use HomeSec to settle a premises purchase before a bank loan or another sale is ready, to pay IRD, to release equity in premises or a home for stock, equipment or working capital, to buy a business, or to refinance a lender that wants to exit. We do not lend to buy or renovate your own home, or for personal spending.
If you want to own premises over many years, a bank is usually the right long-term home for that loan. HomeSec can help you get there, for example by settling the purchase now and being repaid when the bank refinance is in place.
No valuations or cashflow records are needed to start an enquiry. Funding may be possible in as little as 24 hours once assessment, documents, security, legal work and settlement line up, and approved facilities may offer up to six months with no scheduled payments. Interest still accrues during that time, and approval is never guaranteed.
See how HomeSec business loans work, or read our guide to secured and unsecured business loans.
Common questions
Can I get a commercial loan secured by my home?
Yes. Many lenders, including HomeSec, can lend for a business purpose against residential property the business owners own. If your bank already has a first mortgage, a second mortgage may be possible, usually with your first lender's consent. Your home may be at risk if the loan is not repaid, so be confident in the repayment plan.
How much can I borrow on a commercial mortgage?
It depends on the property's value, what is already owing on it, the purpose and how the loan will be repaid. Each lender sets its own limits, and commercial property is usually lent against less heavily than residential. HomeSec lends $20,000 to $1,000,000, subject to assessment.
Do I need a valuation?
Banks usually ask for a registered valuation for a commercial mortgage. HomeSec does not need one to start an enquiry, although further information can be requested during assessment.
Can a new business get a commercial loan?
Banks generally want a trading history. HomeSec has no minimum trading period and can consider start-up business loans where there is suitable property security and a realistic plan to repay.
What do I need to get an answer from HomeSec?
The amount, what it is for, when you need it, the property address and who is on the title, an estimated value, what is owing on it and how you plan to repay.