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Residential credit assessment is largely a formula; commercial credit assessment is closer to a judgement. Two applications for the same amount against buildings on the same street can land on very different terms, because the lender is pricing the building's income, its tenants, its asset class and its resale story — not just a borrower's payslip. Understanding how that judgement is built is the difference between an application that sails and one that gets ground down at every stage. This piece goes inside the assessment mechanics; for the broader landscape — doc types, GST, the process end to end — start with our commercial property loan guide. As ever, this is general information, not advice.
Commercial valuations are specialist work, and they anchor everything: the lender lends against the valuation, not the contract price. Valuers typically lean on two approaches:
Commercial valuations take longer and cost more than residential ones — often weeks, with the bill usually the borrower's even if the loan does not proceed — because the valuer is analysing leases, outgoings, market rents and the asset's re-letting and resale prospects, not just inspecting a dwelling. Practical consequence: have every lease, outgoings statement and recent capital-works detail complete and legible before the valuer is appointed. Gaps get filled with conservatism.
For investment property, the lender's core question is how reliable the income is. Three dimensions dominate:
Where the loan rests almost entirely on this analysis — with no financials behind it — you are in lease-doc territory, which we unpack in our guide to lease-doc lending. For owner-occupied premises, the tenancy analysis is replaced by analysis of the business itself: its financials, its stability and its capacity to pay, as covered in our guide to buying a premises for your business.
Commercial serviceability is usually expressed as coverage rather than surplus. Two related ideas do the work:
The thresholds vary by lender, asset type and income quality — a strong tenant on a long lease earns a thinner required margin than a specialised asset with a private tenant — so treat any specific ratio quoted online as indicative at best. What matters for your planning: the margin the lender requires, tested at a buffered rate, frequently constrains the loan size before the LVR cap does. Borrowers who back-solve from "the LVR says I can borrow X" are often surprised; the income test gets a veto.
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Commercial LVR caps are commonly lower than residential, with no LMI to bridge the gap — and within commercial lending, gearing steps down as assets get harder to re-sell:
Location runs through all of it: a metro industrial unit and an identical regional one can be geared differently simply because of the depth of the resale market.
Two features of commercial lending catch residential-trained borrowers off guard.
First, interest-rate sensitivity is tested, not assumed away: because cover ratios are calculated at buffered rates, a rise in market rates can shrink what you can borrow — and on interest-only facilities, rate rises flow straight into the cover ratio during the loan, not just at approval.
Second, larger facilities often carry annual reviews and ongoing covenants — obligations that survive settlement. Common examples include maintaining a minimum ICR or maximum LVR, providing updated financials or rent rolls each year, and notifying the lender of major lease changes. A covenant breach does not automatically mean default, but it can trigger repricing, reduced limits or a requirement to reduce debt — and a market-driven valuation fall can cause a breach even when every repayment has been made on time. Read the review and covenant clauses before signing, and ask what happens on breach.
The common threads from the credit team's side of the desk:
Commercial credit appetite differs sharply between lenders — the asset type one bank shades, another specialises in, and the spread in gearing, pricing and covenants is wider than anywhere in residential lending. You can see the range on our commercial loans page, or get in touch and we can match your property and income profile to the lenders most likely to assess it well.
Commercial valuers assess the property as an income-producing asset, typically using income capitalisation — sustainable net rent divided by a market capitalisation rate — cross-checked against comparable sales. They analyse leases, outgoings and re-letting prospects, which is why commercial valuations take longer, often weeks, and cost more, with the fee usually payable even if the loan does not proceed.
It is the property's net income divided by the loan's interest cost — the core serviceability measure in commercial lending. Lenders commonly want income to exceed interest by a comfortable margin, tested at a buffered rate above the actual one. In practice the required cover often limits your loan size before the LVR cap does.
Because their value is tied to the business operating inside them, the pool of potential buyers at resale is thin, and converting them to another use is expensive. Lenders respond by lending a smaller share of the value than they would against standard offices, warehouses or retail, and by looking harder at the strength of the operator.
Larger facilities commonly carry annual reviews and ongoing covenants — such as maintaining minimum interest cover or maximum LVR, and supplying updated financials or rent rolls. A breach can trigger repricing or a requirement to reduce debt even if repayments are on time, so read the review clauses before signing and ask what happens on breach.
Conservatively. Assessors rarely take passing rent at face value — they commonly shade it or apply a vacancy and re-letting allowance, because commercial vacancies typically run longer than residential ones and re-letting often involves incentives. Long remaining lease terms, strong tenants and staggered expiries all reduce the discount applied.
Provide complete, well-documented leases and financials upfront, request sensible gearing rather than the theoretical maximum, keep conduct clean on existing facilities, and have a plan for any lease expiries during the loan term. Allowing realistic commercial timeframes for valuation and assessment also tends to produce better answers than a rushed process.
This article is general information only and doesn't consider your personal objectives, financial situation or needs — it isn't personal credit advice, and lending criteria, rates, fees and government schemes change. Before acting, speak with a licensed MakeMyLoan broker or credit representative who will assess your circumstances and provide a credit guide before any credit assistance is given.
