The rate gets the attention, but the terms decide how a commercial loan actually feels month to month. If you run a business in the Bega Valley and you're weighing up a loan, read the terms before you compare rates.
What Do Commercial Loan Terms Actually Cover?
Commercial loan terms are the rules of the loan: how long it runs, how you repay it, what secures it, what it costs to set up and what happens if you want out early. The interest rate is one piece of that.
Two loans with the same rate can behave very differently. One might let you pay interest only for a while. Another might charge a hefty fee if you refinance early. Another might ask for a review of your finances every year. These details sit in the fine print, so ask about them up front. Our commercial loans page covers the types of lending we arrange, and the terms below apply to most of them.
Fixed or Variable Interest Rate on a Commercial Loan
A fixed interest rate locks your repayments for a set period, while a variable interest rate can move up or down with the lender's decisions. Fixed gives certainty, and variable gives flexibility.
The trade-off with fixing is that leaving early or paying extra can trigger break costs, and you won't benefit if rates fall. The trade-off with variable is that your repayments can rise when you least expect it. Some owners split the loan, fixing part for certainty and leaving part variable so they can pay extra when business is flush. If a fixed period is about to end on an existing loan, our fixed rate expiry page explains your options.
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Interest-Only Repayments: A Workshop Purchase Example
An interest-only period means you pay just the interest for a set time, which keeps repayments lower at first but does not reduce what you owe. When it ends, repayments jump because the principal has to be paid back over a shorter time.
As an example, consider a Bega tradesperson buying a small workshop and needing cash left over for fitting it out. They borrow $500,000 on a 25-year term. At an illustrative rate of 6.75% p.a., interest-only repayments come to about $2,813 a month.
They choose two years interest-only. When it ends, principal and interest repayments at the same illustrative 6.75% p.a. must be paid off over the remaining 23 years, which comes to about $3,572 a month. That is roughly $760 more every month than during the interest-only period.
Because they knew the step-up was coming, they set aside the extra amount from the first month and had it built into their budget by the time it applied. The cost of this approach is that they owe the full $500,000 at the end of the two years, and they pay more interest overall than if they had been paying down the loan from day one. These figures are illustrative only. Your own repayments will depend on your lender, your loan amount and your rate, and our calculators can run your numbers.
Secured vs Unsecured Commercial Loan: What You Put on the Line
A secured commercial loan is backed by an asset, usually property, while an unsecured commercial loan is not backed by any specific asset. Lenders often charge a higher rate on unsecured lending because they carry more risk, though this varies between lenders.
The risk with secured lending is that if you can't repay, the lender can sell the asset. Some lenders also ask for extra security, such as a home, on top of the commercial property being bought. That is worth knowing before you sign, because it means your family home could be tied to the business loan. For wider business needs like cash flow or stock, see our business loans page.
How Commercial LVR and Valuation Shape Your Loan Amount
LVR, or loan to value ratio, is the loan as a percentage of what the lender thinks the property is worth. Lenders often set a lower maximum LVR for commercial property than for homes, depending on the property type and the lender.
The lender's valuer decides the value, and it can differ from what you agreed to pay. If the valuation comes in lower, you may need to put in more of your own money to make up the gap. Specialised buildings can be harder to value, so the lender may be more cautious with them. Before you sign a contract, it helps to know roughly what you can borrow, and our borrowing capacity page is a good starting point.
What Should You Ask a Lender Before You Sign?
Ask about four things: what it costs to leave early, whether the lender can change the terms, how often they review the loan, and what happens when the term ends. These shape how much room you have if business changes.
Some commercial loans run for a shorter term than the period the repayments are calculated over. That can leave a lump sum due at the end, which you then need to refinance or pay out. Ask also whether you can make extra repayments, and whether you can draw funds in stages if you are building. Write the answers down and compare them side by side. A broker can do this with you across lenders, and if you already have a loan, a loan health check shows whether its terms still suit you.
If you're based in the Bega Valley and want to talk through a commercial loan, call one of our team or book an appointment at a time that works for you. You can also read about our Bega mortgage broker service. We'll go through the terms with you in plain English before you commit to anything.
Frequently Asked Questions
What are commercial loan terms?
They are the rules of the loan, including its length, how you repay, what secures it, fees and early exit costs. The interest rate is only one part of them.
Should I choose a fixed or variable rate for a commercial loan?
Fixed gives certainty but can bring break costs if you leave early. Variable gives flexibility but your repayments can rise. Some borrowers split the loan between the two.
What happens when an interest-only period ends?
Repayments rise because you start paying off the principal over a shorter remaining time. In the illustrative example at 6.75% p.a. on $500,000, repayments rose by about $760 a month after two years.
What is the difference between a secured and unsecured commercial loan?
A secured loan is backed by an asset such as property, which the lender can sell if you can't repay. An unsecured loan has no specific asset behind it, and lenders often charge more for it.
