Commercial property finance has a reputation for being more difficult than residential lending. Smaller lender panels, larger deposits and more paperwork can certainly make it feel that way.
But according to industry professionals, that's not necessarily the case.
There are indeed additional considerations. Lenders scrutinise other factors such as the property's tenant, lease terms and income potential more closely than they would for a standard home loan.
And if you're purchasing through your SMSF, the fund's liquidity position is another vital consideration. You may also need to navigate additional requirements around trust structures and compliance.
All this can discourage some investors before they've even explored their options.
Now, the real question isn't whether commercial property is harder to finance, but whether investors understand what lenders are looking for.
In this guide, we'll break down how commercial property finance works, what lenders assess and how SMSF investors can improve their chances of securing funding.
See the first guide here: Where do SMSF investors find quality commercial properties
Changes to SMSF borrowing rules
On 23 June 2026, the federal government announced a ban on new SMSF borrowing for residential property. Trustees had until 10 August 2026 to complete existing contracts. SMSFs can no longer purchase residential property via a loan; outright purchases are still permitted.
The changes do not affect existing LRBAs, refinancing arrangements or SMSF borrowing for commercial and industrial property.
Why commercial property financing feels harder
Brokers and lending specialists working in the sector argue commercial property finance is not necessarily harder than residential, but admit several factors involved can make it feel harder to secure.
As Nicholas Lim, lending expert and founder of Switchboard Finance, explains, residential loans are often assessed through highly standardised systems focused on personal income and expenses, whereas commercial transactions are typically assessed more holistically.
In other words, commercial lending is often "assessed, not scored".
The property itself is assessed
One reason commercial finance seems more difficult is that lenders focus on different risk factors.
For residential property, the borrower's income, debts, expenses and credit position are typically the primary considerations.
For commercial property, lenders place significant weight on rental income, tenant quality, lease length, WALE (weighted average lease expiry), property type, and SMSF liquidity after, not before, settlement.
A warehouse leased to a national logistics company may receive far more favourable treatment than a vacant retail shop, even if the borrower is identical.
Mr Lim told Your Investment Property:
"A tired shed with a national tenant on seven years finances beautifully. A prettier building with two years to run and a local operator on a handshake gets you a lower LVR, a higher rate or a decline."
Switchboard Finance founder Nicholas Lim (image supplied)
Higher deposit requirements
For residential property, borrowers can often access 80% loan-to-value ratio (LVR) without lenders mortgage insurance, and in some cases up to 95% with LMI or with government support.
Commercial property loans, by contrast, are often written at lower LVRs than residential loans, with many lenders offering around 60-70%. This means you need a 30-40% deposit plus costs. LMI does not exist.
While some lenders may offer up to 80% LVR, experts say this can largely depend on the type of commercial property and whether it is located in a metropolitan or non-metropolitan area.
For SMSF borrowers, LVRs are often lower again because the loan must comply with limited recourse borrowing arrangement (LRBA) rules.
Different serviceability metrics
Commercial lenders place a significant emphasis on the property's income-generating capacity, the strength of business and the risk profile of the industry.
For SMSF borrowers, serviceability will be generally assessed on rental income, ongoing member contributions, debt-service coverage and the quality of the lease.
Lenders examine whether the SMSF can comfortably service the debt from property income and fund cash flows, while maintaining adequate liquidity.
"The part that catches SMSF trustees is what the lender wants left over after settlement," Mr Lim said.
"It's not enough to have the deposit. The fund has to show it can carry the loan through a vacancy without tipping money in, so lenders look for a liquidity buffer sitting in the fund post-settlement, plus contributions that comfortably cover repayments."
SMSF commercial lending serviceability metrics
Debt Service Cover Ratio
This measures how comfortably the property's income can cover loan repayments. A higher DSCR generally indicates a lower lending risk.
Interest Cover Ratio
For tenanted properties, lenders may assess an ICR, comparing net rent against interest cost to see whether the lease covers the interest bill with room to spare.
Rental income
Some lenders may include 100% of rental income, while others may only recognise 80% when calculating serviceability.
Lease profile
This can include tenant strength, occupancy levels, lease terms and conditions, and Weighted Average Lease Expiry (WALE).
Liquidity and cash buffer
Lenders may examine whether the SMSF has sufficient funds to meet loan repayments, property expenses and unexpected costs after property purchase.
Ongoing super contributions
Lenders may review contribution history and consider members' capacity to maintain contributions.
How SMSF commercial lending differs from residential lending
If you're an SMSF investor considering commercial property, you may be asking yourself, how will the financing process differ from the residential lending I'm familiar with?
The short answer is, they are quite different.
While residential lenders primarily focus on the borrower and whether you can afford repayments, commercial lenders want to know whether the property and the SMSF can sustainably support the debt over the long term.
That means looking closely at rental income, lease quality, tenant strength, fund contributions and cash reserves. The result is a lending process that can be more complex than a standard home loan but also one that gives weight to the quality of the asset being purchased.
SMSF commercial purchases typically involve a limited recourse borrowing arrangement (LRBA), a bare trust and a range of compliance requirements.
According to Joseph Daoud, mortgage broker and founder of It's Simple Finance, one of the biggest surprises for first-time SMSF commercial investors is the complexity of the structure itself.
Mortgage broker and It's Simple Finance founder Joseph Daoud (image supplied)
"It is important to understand that independent legal, tax and financial advice should be obtained before proceeding," Mr Daoud told Your Investment Property.
"The structure needs to comply with superannuation and tax legislation, and getting the trust or borrowing arrangements wrong can be costly and difficult to rectify."
What is an LRBA?
SMSF loans are typically structured as a limited recourse borrowing arrangement or LRBA. Under an LRBA:
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The asset is held in a separate holding (bare) trust
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The lender's recourse is generally limited to the asset the loan is secured against
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The fund holds the beneficial interest
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The legal ownership transfers to the SMSF once the loan is repaid
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Additional legal and compliance requirements apply
'Lenders aren't financing the building, they're financing the tenant'
While residential lending assesses the borrower, commercial assesses the lease.
Or as Mr Lim puts it:
"The bank isn't buying the building, it's buying the tenant."
The Switchboard Finance founder says lenders often ask:
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Who occupies the property?
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How long does the lease run?
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What happens when the lease expires?
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How easily could a replacement tenant be found?
So what do lenders look at?
Tenant quality
Lenders want to know who is paying the rent and how likely they are to continue doing so. A strong tenant with a stable business and proven trading history can improve a property's 'financeability' because they can provide a more reliable income stream.
"A national tenant is nice, but a well-established local operator does fine. Fixed annual rent reviews, a net lease where the tenant wears the outgoings, options to renew, a tenant who's been in the premises for years," Mr Lim said.
Lease length
Longer leases are generally viewed more favourably as they provide greater certainty that rental income will continue over time. Ideally the property should have "a lease with plenty of time left inside the loan period", according to Mr Lim.
"Purchasing a property with an existing lease can be particularly beneficial, as it demonstrates that rental income is already being received rather than the lender having to rely on more conservative rental estimates or projected income," Mr Daoud said.
Property location
Location matters not only from an investment perspective, but also from a lending standpoint. Lenders generally favour properties in established markets with strong tenant demand, good transport links and a broad pool of potential tenants.
Steven Ragany, national commercial and asset manager at Finance Brokers Association of Australia (FBAA), says lenders consider whether a property enjoys diversified demand.
"Diversified demand would generally be more appealing to lenders as they are more sought after and have multiple uses," Mr Ragany told Your Investment Property.
FBAA national commercial and asset manager Steven Ragany (image supplied)
What lenders like to see
✅ Long lease terms
✅ Strong tenants
✅ Established occupancy history
✅ Net leases where tenants pay most outgoings
✅ Desirable locations
What raises red flags
❌ Short or uncertain lease terms
❌ Weak related-party tenants
❌ Limited occupancy history
❌ Specialist use properties
❌ Locations with weaker demand
Which commercial properties do lenders prefer
Warehouses units are generally considered lender-friendly (Pexels)
Not all commercial assets are viewed equally. But there is one category that experts agree is viewed as one of the most lender-friendly.
Mr Daoud and Mr Ragany both identify industrial property as generally an attractive security due to their broad range of uses and demand.
Industrial assets can include warehouses, factories and light industrial units.
Medical facilities can be particularly attractive as well, according to Mr Daoud, especially "where the applicant operates their own business from the premises" (e.g. a dentist purchasing their own clinic).
"This can provide greater certainty around ongoing occupancy and rental income," Mr Daoud explained.
Offices and retail properties in established locations can also attract good lender appetite, according to Mr Ragany, but "this can vary significantly by lender, location and individual property".
Meanwhile, properties that may attract additional scrutiny include niche or specialised assets such as boarding houses , fast food outlets and car parks .
"They can be viewed as higher risk due to their narrower tenant pool and potentially greater difficulty in re-leasing or selling," Mr Daoud noted.
As a result, Mr Daoud says, lenders may apply lower LVRs and/or higher interest rates to these properties "to compensate for the additional risk".
What commercial property is generally lender-friendly?
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Warehouses
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Factories
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Medical suites
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Office
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Retail
What commercial property attracts additional scrutiny?
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Boarding houses
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Fast-food outlets
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Car parks
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Other niche properties
Why liquidity matters in SMSF commercial lending
Having the cash to fund the property purchase is not the end of the story.
For SMSF commercial property lending, Mr Daoud says some lenders apply a liquidity test.
"Meaning the SMSF must retain a certain amount of cash or liquid assets after settlement rather than using 100% of its available funds towards the property purchase," he explained.
Mr Lim says many first-time SMSF investors are surprised to learn that having enough money for the deposit doesn't guarantee approval.
"[One of the things that catches SMSF investors is that] the deposit turns out to be the easy part," Mr Lim said.
"The fund can cover the purchase and still get told 'no', because the lender wants to know what's left afterwards, and nobody warned them about that."
According to Mr Ragany, lenders typically want confidence that the fund can continue meeting repayments and expenses if something goes wrong, such as longer vacancy periods, unexpected maintenance costs or large capital expenditure requirements.
"An SMSF also has to continue meeting its other obligations rather than having all available capital tied up in one asset," Mr Ragany added.
Industry experts say not all lenders require a formal liquidity test, and no actual figure is considered the standard level of what "healthy" liquidity looks like. Requirements vary between lenders.
What you need to know about valuations in commercial lending
"This is where deals actually die," Mr Lim said about commercial property valuation.
Commercial valuation can be more complex than simply comparing recent sales, as it is with residential assets.
In addition to comparable sales, Mr Ragany says a valuer may take account of the following factors:
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Rental income
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Lease terms
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Tenant quality
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Market yields
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Capitalisation rates
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Location
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Property condition
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Future marketability
Mr Ragany notes:
"A purchase price may therefore not necessarily represent the value a lender is prepared to adopt for security purposes."
According to Mr Lim, the lender's valuer applies their own cap rate, "usually wider than the one you bought on".
"Comparable sales are thin in commercial, so they lean conservative. And a lot of buyers run their numbers on gross yield while the valuer uses net, after outgoings, and that alone can be a point or two," Mr Lim added.
"A deal that stacks at 7% in the contract can be valued at 8% by the bank, and the shortfall comes out of your cash, not the loan."
Opinions on whether valuations typically come in below purchase price vary across industry professionals.
Mr Lim says this is common enough that he treats it as "live" on every commercial purchase.
Mr Ragany agrees, saying it "certainly happens" especially in a market with flattening sales.
However, Mr Daoud believes it is "not particularly common", especially where the property has been purchased at a market-supported price with good comparable evidence.
But when a valuation does come in below purchase price, he suggests engaging with the valuer and providing additional comparable sales, rental evidence or other relevant market information for consideration.
"Valuers are required to analyse relevant market evidence and apply professional judgement when determining their opinion of value," Mr Daoud said.
While several experts highlighted valuation shortfalls as a recurring issue, there are no exact figures of how often valuations affect a commercial property loan assessment.
"I don't think there is a reliable industry-wide percentage, but they occur regularly enough that purchasers should allow for the possibility," Jonathan De Sensi, finance broker and director of Marquee Group, told Your Investment Property .
Is commercial finance actually easier for some borrowers?
Ironically, commercial finance can sometimes work in favour of borrowers who struggle with traditional residential lending assessments.
Mr De Sensi says lenders may be willing to accept irregular income, complex self-employed borrowers or some "minor historical credit issues where the rental income, security and equity position are strong".
Marquee Group director Jonathan De Sensi (image supplied)
Mr Lim similarly argues that commercial finance allows lenders to understand context in a way automated residential systems cannot.
"Residential lending is a tick-box exercise: your income, your expenses, your credit file, run through a policy engine that mostly says 'yes' or 'no' without a human forming a view," Mr Lim said.
By having a person "actually reading the deal" rather than a calculator built for payslips, Mr Lim says a non-traditional borrower (e.g. self-employed) "who gets machine-declined on a home loan can be perfectly fundable commercially".
While commercial lenders may be open to assessing non-standard income sources, poor credit conduct and incorrect SMSF structure will still cause problems.
Ultimately, this doesn't make commercial lending easier, but it does make a difference.
Residential lending tends to focus heavily on the borrower.
Commercial lending often takes a broader view of the borrower and places greater emphasis on the property's ability to generate sustainable income and the SMSF's financial resilience.
For SMSF investors moving from residential property into the commercial sector, understanding those priorities may be the difference between a smooth approval and an unexpected roadblock.
So, is commercial property really harder to finance than residential?
Mr Lim has this to say:
"Commercial isn't harder than residential. It's less forgiving of a weak asset and far more forgiving of a complicated borrower."
Disclaimer: This guide provides general information only and should not be considered financial, legal or tax advice. SMSF investors should seek professional advice tailored to their individual circumstances before making investment decisions.
Header image from Pexels
