Common Mistakes When Buying a Commercial Office Building

Buying Without Knowing Your Borrowing Capacity

Your borrowing capacity for a commercial property loan depends on your business income, existing debts, and the rental yield or owner-occupation plans for the building.

Lenders assess serviceability differently than they would for residential property. They look at your business financial statements, often requiring two years of trading history, and calculate whether your cashflow can cover loan repayments alongside your operating expenses. If you plan to lease part of the building to tenants, some lenders will include a portion of that rental income in their assessment, but rarely the full amount.

Consider a buyer looking at a two-storey office building in Wollongong's CBD, planning to occupy the ground floor and lease the upper level. The rental income from the tenant helps with serviceability, but the lender applies a discount to account for vacancy risk. The buyer's existing business turnover and net profit become the primary factors in how much they can borrow. Without a clear picture of serviceability before making an offer, they risk committing to a purchase they cannot fund.

Running a cashflow forecast before you start looking helps you understand what deposit and loan structure will work without draining your working capital. A secured business loan for commercial property typically requires a deposit of at least 20% to 30%, and settlement costs add another layer of upfront cash. If your business needs that capital for stock, payroll, or expansion, you may need to adjust your purchase price or loan structure.

Fixed or Variable Rates for Commercial Property

Fixed interest rates lock in certainty for a set term, while variable interest rates offer flexibility with features like redraw and offset.

Most commercial lenders offer both options, but the loan structure you choose should reflect how you plan to use the property and whether you expect your business income to fluctuate. A fixed rate protects you if rates rise, but you lose access to redraw and face break costs if you pay down the loan early. A variable rate gives you the option to make extra repayments and redraw funds when you need them, which matters if your business has seasonal cashflow.

In our experience, buyers who plan to expand or renovate within the first few years lean toward variable rates or a split structure. They want the ability to redraw funds for fit-outs or equipment without applying for a separate loan. A buyer who values certainty and plans to hold the property long-term may prefer a fixed rate, particularly if they operate in an industry with predictable revenue.

A business loan for commercial property can be structured with both fixed and variable portions, splitting the loan to balance certainty and flexibility. This approach works when you want protection from rate rises but still need access to capital if opportunities come up.

Underestimating the Full Cost of Settlement

Settlement involves more than just the deposit and loan approval.

You will need to budget for legal fees, building and pest inspections, stamp duty, loan establishment fees, and valuation costs. In NSW, stamp duty on commercial property is calculated differently than residential property, and the rates vary depending on the purchase price and property type. A buyer purchasing a commercial office building in Canberra faces ACT stamp duty rates, which differ again from NSW.

Legal fees for commercial property transactions tend to run higher than residential conveyancing because the contracts are more detailed and often involve lease agreements, strata reports, or zoning checks. If the building has existing tenants, your solicitor will review those leases to confirm rent, term, and any maintenance obligations that transfer to you as the new owner.

Planning for these costs upfront means you are not scrambling to cover shortfalls at settlement or pulling cash out of the business when you need it for operations. Some buyers include settlement costs in their loan amount, but that increases your borrowing and the interest you pay over the term.

Choosing the Wrong Loan Term for Your Business Goals

Commercial property loans typically range from 5 to 30 years, but the term you choose affects your repayments and total interest cost.

A shorter loan term means higher repayments but lower overall interest. A longer term reduces your monthly commitment, which can help if your business is still building revenue or if you want to preserve cashflow for other opportunities. The term should align with how long you plan to hold the property and whether you expect your business income to grow.

As an example, a buyer purchasing an office building in Queanbeyan to consolidate their operations may choose a 15-year term because they want to own the property outright before retirement. Their business generates steady income, and they can afford the higher repayments. Another buyer in the same suburb, planning to expand into additional locations over the next decade, may opt for a 25-year term to keep repayments lower and preserve capital for future property purchases or equipment.

Flexible loan terms let you structure the loan around your business plan rather than forcing your business to fit the loan. Some lenders also allow you to shorten the term later by making extra repayments, provided you are on a variable rate with redraw.

Overlooking the Value of Pre-Approval

Pre-approval gives you a clear borrowing limit and strengthens your position when negotiating with sellers.

In a commercial property transaction, sellers want confidence that the buyer can settle. A pre-approval shows you have already been assessed by a lender and that finance is likely to proceed, subject to property valuation and final checks. This can make the difference between your offer being accepted or passed over for another buyer who has their finance sorted.

Pre-approval also exposes any issues with your business credit score, debt service coverage ratio, or financial statements before you commit to a purchase. If your business has existing debts or irregular income, the lender may require additional documentation or suggest a different loan structure. Finding that out during the cooling-off period is better than finding it out a week before settlement.

Working with a broker who has access to business loan options from banks and lenders across Australia means you are not limited to one lender's appetite or criteria. Different lenders assess commercial property differently, and some are more flexible with startups, franchises, or businesses with fluctuating cashflow.

Not Considering How You Will Use Equity Later

The equity you build in a commercial property can be used to fund business expansion, purchase equipment, or acquire another property.

If you structure the loan with a variable rate and redraw facility, you can access that equity without refinancing. This matters if you want to buy another building, upgrade your fit-out, or invest in machinery that increases your revenue. Locking yourself into a fixed rate without redraw means you will need to apply for a new loan or wait until the fixed term ends.

Some buyers use a business line of credit or business overdraft alongside their commercial property loan to manage short-term cashflow needs. The property loan covers the purchase, while the line of credit provides working capital for stock, payroll, or seasonal expenses. This structure separates long-term debt from short-term needs and avoids redrawing against the property loan unnecessarily.

If you plan to expand operations or seize opportunities as they arise, the loan structure you choose now will either support that or restrict it. Talking through your growth plans with your broker before you settle helps you set up the loan in a way that works for more than just the purchase.

Call one of our team or book an appointment at a time that works for you. We work with businesses across NSW and the ACT to structure commercial property loans that support growth without tying up capital you need to operate.

Frequently Asked Questions