Commercial Property Loans in New Zealand for Owner-Occupiers

A business buying its own premises can usually borrow 60 to 65 per cent of the value of the property from a main bank, so you need roughly 30 to 35 per cent in cash or other security. Strong, well-capitalised businesses can sometimes fund much more through a split loan structure, but the extra is lent against the business's cash flow, not the building. Lenders judge an owner-occupier commercial property loan mainly on the trading company's profit and the interest cover it produces, not on the rental income the building could earn from a stranger.

This guide covers how that works in practice, what the structure and lender choices mean, and where first-time buyers get caught.

Key Takeaways

How commercial lending differs from a home loan

A home loan is assessed on your salary and a standard model. Commercial lending is assessed deal by deal. Every commercial property is different, and banks weigh the quality and tenure of leases, the location, the type of business operating there, your experience, the condition of the building, zoning and your existing debt and structure.

A commercial mortgage also differs from a residential property loan in the numbers. Residential mortgages can go up to 90% LVR in some cases, while commercial property finance is more often around 65% to 70%. Terms are shorter and interest rates higher, with a premium of around 2% to 3% above home loan rates.

A commercial mortgage is also not a business loan. A residential mortgage buys a home, a business loan starts up or buys a business, and a commercial mortgage buys business property. A commercial mortgage generally costs less than a standard business loan because it is secured on the property.

The most useful distinction is between owner-occupier and investor lending, because the credit assessment is different:

• Owner-occupier: the lender looks at the trading company's profit and loss and balance sheet. In effect the lender is backing your business's ability to pay rent to itself.
• Investment property: the lender looks at the tenant and the lease. The bank uses two times the actual interest cost as the rent needed, so a $1,000,000 loan at the 8.5% rate that applied in December 2022 costs $85,000 a year and needs $170,000 of rent. Most investment lending ends up around 30% to 35% LVR so the rental income covers the interest, and indicative investor LVRs from main banks run at 50% to 55%.

That is why a property investor and a business owner can walk into the same bank and be asked for different things.

What the lender assesses on an owner-occupier purchase

Lenders look at four things: the borrower, the security, the income and the structure (LVR, term, interest-only window, fixing). For an owner-occupier the income is the trading business, so your GST returns and accounts carry more weight than your personal credit position.

In practice the file usually needs:

• Two to three years of trading accounts, GST returns and an aged debtors and creditors report. Some lenders ask for three years of annual accounts, three-way forecasts, year-to-date figures and a debtor and creditor schedule.
• A 12-month forward cash-flow forecast that includes the cost of owning the building.
• Company incorporation documents or a trust deed, and ID for every director and guarantor.
• A registered valuation, plus a building and seismic report.

These are the lending criteria in practice, and they are the same ones your accountant will be preparing anyway.

If the business has been trading for less than two years, a main bank is harder. Banks generally prefer at least two years of trading history, while some alternative lenders will look at your experience and projections. Newer businesses may be asked for personal guarantees or extra security.

Why interest cover is usually the real limit

Main banks commonly look for an interest-cover ratio of 1.5x to 2.0x EBITDA against the new debt service on owner-occupier deals. Many SMEs find ICR, not LVR, is the binding constraint, especially for a service business where the building is expensive relative to revenue.

There is one point in your favour. If you are buying the building you already lease, the rent stops and is replaced by mortgage interest and principal. The principal slice does not count toward the ICR calculation, so the test often looks better than it would for the same building bought as an investment.

Profit is measured as net profit plus addbacks, including current rent, depreciation and one-off operating costs. The rent you pay today is added back because it ceases. Ask your accountant to prepare that number before you speak to a lender or a mortgage adviser.

Two further conditions apply. The building must be predominantly owner-occupied, and a bank likes a small sub-let because the extra rental income helps cash flow. Owner-occupied lending is generally defined as properties where the business occupies 50% or more of the space.

Deposit and loan-to-value: how much do you need?

For a standard owner-occupier purchase, plan on a 35% deposit. The figures vary with the lender and the strength of the business:

Position	LVR / deposit
Main banks, owner-occupier	60% to 65% LVR
Standard for most mainstream lenders	65% LVR, 35% deposit
Straightforward commercial deal	Budget at least 30% deposit or equity
Some non-banks, strong cases	Around 30% deposit
Exceptionally strong owner-occupier	Up to 100% funding

The 100% figure is where first-time buyers get misled. The general structure is 65% secured against the building, with the remaining 35% as a top-up charged on a principal-and-interest basis over 3 to 5 years. Often this is a split between the property-owning entity and the operating entity, with the 35% as an unsecured cash-flow loan repaid over five years. The bank is not lending 100% against the value of the property. It is lending 65% against the building and 35% against your trading cash flow, and the 35% has to be repaid quickly.

Can you borrow using another property as security?

Yes. If you do not want to tie up working capital, you can offer other property as security. Banks generally lend up to 65% of the commercial property's value, and a maximum of 80% of the value of a home offered as additional security. This is a popular way to fund the whole purchase and keep your cash in the business.

Here is a worked scenario. A food manufacturer is offered its leased building at $3.6 million and borrows $2.5 million against combined security, which is an effective LVR of about 70%. The arithmetic checks: $2.5m divided by $3.6m is 69.4%.

Two warnings. Putting your home behind a business loan means the family home is exposed if the business struggles. And KiwiSaver generally cannot be used to buy commercial property.

Valuation: the price you agree is not the number that matters

Lenders price the loan against a registered valuation, not the figure on the sale and purchase agreement. If the valuation comes in below the price, the loan shrinks and your deposit has to grow. Get the valuation early.

The valuer should be Property Institute of NZ-accredited, and the lender commissions or accepts the valuation directly. A commercial registered valuation costs $2,500 to $8,000. Commercial valuations consider income potential and market comparables, and the valuation usually comes from the bank's panel valuer.

Seismic rating

This is the issue that most often surprises first-time buyers. 34% of the New Building Standard (NBS) is the threshold for "earthquake-prone", and buildings under 67% commonly face narrower lender pools, higher insurance premiums and weaker resale liquidity. The usual minimum NBS is 67%, normally verified in the registered valuation, and the rating should ideally be 67% or higher. Lenders are extremely cautious below 34%.

If the building you lease is old, ask for the rating before you spend money on anything else.

Types of commercial property lenders will fund

The types of commercial property differ in how a lender treats them. Lenders fund warehousing, offices, factories, retail and residential, retail or business mixed use, as well as light and heavy industrial, small retail premises and buildings in use to run a business such as a dairy.

Specialist assets are assessed on different lending criteria:

• Motels, hotels, accommodation and bare commercial land have their own criteria, distinct from standard commercial owner-occupied and rental properties.
• Maximum LVR can be as low as 50% for specialised assets such as motels and early childcare facilities.
• Mixed-use properties, such as retail with apartments or office with residential, are complex structures, and development sites need specialised development finance.

Vacant buildings are a different case. Second-tier lenders are the usual route for vacant-possession purchases or short-lease properties that a bank sees as too risky.

Can you live in a commercial property? That depends on the zoning and the lender. A building with a residential component is a mixed-use asset, and lenders treat it as its own category with its own criteria. Raise it at the start, because it affects both the loan structure and who will lend. For a property development, rates in March 2022 ran around 5% to 6% above residential, against 2% to 3% for a standard commercial property.

Owning through a separate company or trust

Many owners hold the building in a separate property company that leases it to the trading company. This is a common New Zealand structure for asset protection and succession planning. The practical benefits of owning premises are no surprise rent rises, the option of a sale and lease-back if the business gets into trouble, the ability to let unused space, and the option to keep the building and lease it to the next owner when you exit.

The honest limit on the asset-protection argument is the personal guarantee. Guarantees are typically required from directors or controlling shareholders even when the loan sits in the property company, and are enforced where the property security is not enough to clear the debt. Most commercial loans require them. A separate company changes who owns the building. It rarely removes your personal exposure to the lender.

Who can apply? Companies and trusts both can, with company incorporation documents or a trust deed plus ID for every director and guarantor. A family trust, several entities or a joint purchase with a partner add complications, which is why the structure should be settled early.

Points to settle with your accountant before you apply:

• The lease between the two entities. A copy of the lease between the buyer and the business occupying the property, with rent excluding GST, is part of a purchase file. Make sure the lease is documented and the rent is one the trading business can actually afford.
• Tax treatment. Interest on a loan used for business purposes is generally deductible against the relevant income, subject to your accountant confirming the structure and use of funds.

Interest rates, repayment and loan terms

Commercial pricing is risk-based, not a rate card. It moves with LVR, the security, bank versus non-bank, term and serviceability, and anyone quoting a rate before seeing your file is guessing.

What are current commercial property loan rates in New Zealand? Indicative interest rates run as follows:

• An indicative owner-occupier rate of 7.00% to 8.00%, with a premium on any unsecured portion.
• Main bank rates of 6.50% to 7.50%, and non-bank rates of 9% to 11% plus fees of 1% to 2%.
• 7% to 11% across the market, with non-banks at 8% to 11%.
• A broader range of 6% to 9%, depending on loan amount, deposit, property type and business strength.

Treat these as a range and ask for a term sheet on your actual deal.

Which loan is best for commercial property? For an owner-occupier, usually an amortising commercial mortgage from a main bank, with an interest-only window only if the cash-flow plan needs it. If you need more than 65%, the split structure above is the usual answer.

Terms. Commercial mortgages commonly run 15 to 25 years on principal-and-interest repayment, with rate fixes of 1 to 5 years. Many are 15 to 20 years, and a typical owner-occupier structure has a maximum of 15 years. You will not get the 25 to 30 years of a home loan. Expect to refinance or roll over at fixed-rate expiry, and note that commercial rates do not always move with residential rates.

Interest-only periods. The first 3 to 5 years of an owner-occupier loan can be interest-only. A 1 to 2 year window suits a fit-out or settling-in period, whereas five years only pushes repayments back without fixing the servicing position. If the loan only works while you are not repaying principal, it does not work.

A worked example

Take a $1.4 million purchase and a $910,000 loan at 65% LVR, at an indicative 8.0% over 25 years with a 2-year interest-only window. Interest alone on $910,000 at 8.0% is $72,800 a year, or about $1,400 a week. After the window, principal-and-interest repayments rise to about $1,620 a week, or about $84,200 a year.

The deposit is $490,000 (35% of $1.4m), and costs come on top. At 1.5% to 3%, that is a further $21,000 to $42,000 on $1.4m.

Bank or non-bank lender?

	Main bank	Non-bank
LVR	Around 65%	Some up to 70%
Rate	Lower end of the range	9% to 11% plus 1% to 2% fees
Speed	Weeks or months through credit committee	Can answer in days
Trading history	Prefers two years	More flexible
Best for	Long-term ownership	Short history, harder security, quick settlement

Non-bank specialists compete on higher LVR, shorter trading history, secondary locations and recently leased property. A non-bank settlement followed by a refinance to a main bank at the two to three year mark is a common path where the trading record is too short for bank pricing.

Use non-bank funding only for the short term and have a plan to bring the asset to bank criteria. The cost is real: on $910,000, the gap between 7.5% and 10% is $22,750 a year in interest, before fees.

Can you get a commercial loan after a bank declines? Often, yes. A decline is frequently a policy problem rather than a numbers problem. It still pays to understand the reason before you try the next lender.

Commercial property finance: how to apply and what it costs

Legal fees, the registered valuation, seismic and weathertightness reports, building reports, due-diligence surveys and LIM searches commonly add 1.5% to 3% on top of the price. Many buyers find this eats into the deposit.

The process usually runs as follows:

1. Prepare the financials and get a valuation.
2. Submit the application with your business information and the sale and purchase agreement.
3. Wait for the lender's legal and credit checks.
4. Receive a formal offer.
5. Satisfy the conditions and settle.

A good application includes an information memorandum covering the ownership structure, the principals' background, a tenancy schedule, accounts, valuations and an IEP report. A broker or mortgage adviser who works in this area will normally prepare it. Commercial loans typically take 6 to 8 weeks to process, though straightforward deals can be faster.

Things to settle before going unconditional:

• GST. Commercial property is typically zero-rated when both parties are GST-registered and it is sold as a going concern with a tenant. A wrong classification can create an unexpected 15% cash-flow hit at settlement, so ask your accountant to confirm.
• Insurance. Lenders commonly check for full reinstatement cover, not indemnity, and underinsurance is a common reason for a decline or higher pricing.
• Your current lease. Check notice periods and exit costs, plus moving costs.

Is buying right for you? Commercial property investment versus owning your own

Investing in commercial property can be attractive for a property investor. But the owner-occupier case is different. You are not investing in commercial property for yield. You are removing a rent cost and gaining control of your premises. Owning can lower your business expenses by removing the lease cost. The downside is concentration: your business and your main asset now depend on the same trading income. Several commercial investments can be diversified. Your premises cannot.

If you are weighing it up, the two numbers to compare are your annual rent today and the annual interest and principal on the loan, plus the deposit you would tie up and the costs above.

Frequently Asked Questions

How much deposit do I need for a commercial loan to buy my business premises?

Plan on 30% to 35% for a main bank deal. A strong, well-capitalised business can borrow more through a split structure, where 65% is secured on the building and the rest is a shorter-term loan against cash flow.

Can I use my house as security?

Yes. Banks generally lend up to 80% of a home's value when it is offered as additional security, and this lets you keep working capital in the business.

Do I need a personal guarantee?

Usually. Directors or controlling shareholders are typically asked, even when a separate company owns the building.

How long does it take?

Allow 6 to 8 weeks as a planning figure. Some non-bank lenders can move in days.

Can a new business get a commercial loan?

Possibly, but main banks prefer two years of trading history. A non-bank may lend sooner, usually at a higher cost, with a refinance to a bank later.

Deplexifi is run by a chartered accountant, and we look at these files the way a lender's credit team does: interest cover first, structure second, price third.

Assuming 100% funding means the bank is lending 100% against the building. The top 35% is usually a short-dated loan against your cash flow.

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.