Commercial Property Loans in NZ: How Lenders Assess Your Deal

How commercial lending differs from a home loan

A home loan is assessed mainly on you — your income, your expenses and your deposit. A commercial loan is assessed on the property as a business: the rent it earns, how secure that rent is, and what the building would be worth if a tenant left. Your own finances still matter, but they are only part of the picture.

The numbers lenders focus on

• Loan-to-value ratio (LVR). How much is borrowed against the registered valuation. Expect lower maximums than for residential property, with the limit tightening for specialised or secondary buildings.
• Interest cover ratio (ICR). Net rental income divided by the interest cost. Lenders want a buffer, so the rent covers the interest comfortably, not just exactly.
• Weighted average lease term (WALT). How long the existing leases run, weighted by rent. A long WALT with reliable tenants is much easier to finance than a building with leases ending soon.
• Tenant strength. A national chain or government tenant is assessed very differently from a new local business. Lenders look at who pays the rent, not just how much.
• Vacancy and re-letting risk. How easily the space would let again if a tenant left, and at what rent.

Owner-occupier or investor?

Buying premises for your own business is assessed differently from buying commercial property as an investment.

• Owner-occupiers are assessed mostly on the operating business — its profits, history and ability to pay rent to the property-owning entity. Many business owners hold the property in a separate company or trust that leases it to the trading business, and the lender looks at both.
• Investors are assessed mostly on the property's income from third-party tenants, supported by the investor's wider financial position and other holdings.

Either way, how the purchase is structured — personally, through a company, or through a trust — affects guarantees, tax and future flexibility. Get your accountant and solicitor involved early.

GST on commercial property

GST often catches first-time commercial buyers out. When land is sold between two GST-registered parties and the buyer intends to use it to make taxable supplies, the sale is generally zero-rated — meaning no GST is charged. If the conditions aren't met, GST may be payable on top of the price, which can significantly change how much you need to fund on settlement.

Your solicitor should confirm the GST position in the sale and purchase agreement, and your accountant should confirm your registration. See Inland Revenue's GST guidance for the official rules.

Putting together a strong application

1. Information memorandum or listing details, including the rent roll.
2. Copies of all current leases and any variations.
3. A registered valuation addressed to the lender (we'll tell you when to order it).
4. Recent financial statements for the buying entity, and for the trading business if you're an owner-occupier.
5. Details of your other assets and debts, including residential property.
6. A brief summary of your plans for the property — holding, improving, or occupying it.

A clear, complete application helps, because commercial credit decisions take longer than residential ones. Allow enough time for finance in your conditional period.

How we help

Commercial lenders' appetite varies a lot by asset class, location, tenant and borrower. We put your deal forward to the commercial lenders whose appetite suits it, present the lease profile and borrower strength clearly, and manage the process through to settlement. For investors who also hold residential property, we look at the whole portfolio so one purchase doesn't restrict the next.

More on the service: commercial property loans.

This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often — check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.