Commercial Finance: A Plain-English Guide for Sydney Businesses
Commercial finance is borrowing for business purposes, such as buying property, equipment or a business, or funding cash flow. It is mostly assessed on business income, security and the director's position, not on personal income alone.
This guide explains the main types of commercial finance, what each one is typically secured by, how lenders assess an application, and how to compare cost when there is no standard comparison rate. It is written for Sydney business owners who want to understand the options before they talk to a lender or broker.
What is commercial finance?
Commercial finance is any loan, lease or credit facility used mainly for a business purpose. It covers term loans, commercial property loans, equipment finance, overdrafts and lines of credit, invoice and trade finance, and business acquisition loans. Lenders assess it on the business's ability to repay, the security offered and the people behind the business.
Because most commercial lending falls outside the consumer credit rules that apply to home loans, products, pricing and documentation vary more from lender to lender. That makes it worth understanding the structure before you focus on the rate.
Types of commercial finance
The table below matches common business needs to the product usually used for them. It follows the loan types described by the Australian Government at business.gov.au. Security and pricing vary by lender; treat this as a starting point, not a rule.
| If you need to… | Consider | Typical security | How cost is usually quoted |
|---|---|---|---|
| Fund a one-off investment or expansion | Business term loan | Business assets (GSA), property, or unsecured with a director guarantee | Interest rate plus establishment and ongoing fees |
| Buy or refinance premises or an investment property | Commercial property loan | Registered mortgage over the property | Interest rate (or margin over a benchmark) plus fees |
| Buy vehicles, machinery or technology | Equipment finance (chattel mortgage, lease, hire purchase) | The equipment itself | Interest rate or lease rental, plus any balloon or residual |
| Smooth day-to-day cash flow | Overdraft or line of credit | Property, GSA or unsecured with guarantee | Interest on the drawn balance plus a limit or line fee |
| Unlock cash tied up in unpaid invoices or stock | Invoice finance or trade finance | The receivables or the goods being funded | Discount or service fee plus interest on funds advanced |
| Buy a business | Business acquisition loan | The target business's assets, property and guarantees | Interest rate plus fees; may include covenants |
Term loans
A term loan is a lump sum repaid over a set period, usually with regular principal and interest repayments. It suits a specific purchase or project with a clear payback. Terms and security requirements depend on the lender and the size of the loan.
Commercial property loans
Commercial property loans fund the purchase or refinance of offices, warehouses, retail shops, medical suites and other non-residential property, either for your own business or as an investment. Deposit, loan-to-value ratio and servicing rules differ from home loans. Our commercial property loans guide covers LVRs, interest cover and documents in detail.
Equipment finance
Equipment finance lets a business buy or use vehicles, machinery, technology or fit-outs and pay over time, with the equipment usually acting as security. The main structures are chattel mortgages, finance leases, hire purchase and rental. See equipment and asset finance for more on the options.
Line of credit and overdraft
A line of credit or overdraft gives you a limit you can draw on and repay as needed. You generally pay interest only on what you use, plus a fee for the limit. It suits uneven cash flow rather than long-term asset purchases. See also our page on business overdrafts.
Invoice and trade finance
Invoice finance advances a percentage of your unpaid invoices so you are not waiting on customer payment terms. Trade finance funds the purchase of stock or imports before you sell them. Both are secured mainly by the receivables or goods. More detail: invoice finance and trade finance.
Business acquisition loans
Acquisition finance helps you buy an existing business. Lenders look closely at the target's historical earnings, the buyer's experience and the security available. See business acquisition finance.
Secured vs unsecured: what's at risk?
A secured loan gives the lender a claim over specific assets if the loan is not repaid. An unsecured business loan has no specific asset pledged, but it almost always comes with a personal guarantee from the directors, so your personal assets can still be at risk.
- Registered mortgage. A charge over real property, such as your premises or your home.
- General security agreement (GSA). A charge over all or most of the business's present and future assets, typically registered on the Personal Property Securities Register (PPSR).
- Specific security. A charge over one asset, such as a piece of equipment, also usually registered on the PPSR.
- Director or personal guarantees. A promise by the directors (and sometimes their spouses or related entities) to repay if the business cannot.
Before signing, make sure you understand exactly what is being secured and who is guaranteeing. If home equity is offered as security, your home could be at risk if the business cannot repay. Speak with your lawyer or accountant before agreeing.
How lenders assess a commercial application
Lenders assess five things: whether the business can service the debt, the quality of the security, how the business and its owners have conducted their accounts, the risk of the industry, and the experience of the people running it.
- Serviceability. Whether profit or cash flow comfortably covers repayments on all debts, often tested at a buffer above the actual rate.
- Security. What the lender can rely on if things go wrong, and how much they will lend against it.
- Conduct. Bank statement history, ATO lodgement and payment position, and credit file for the business and directors.
- Industry. Some industries fall inside a lender's appetite and others do not. Policies differ between lenders.
- Experience. How long the business has traded and the owners' track record in the industry.
Bank, non-bank or private lender?
Banks are usually cheapest for borrowers who fit their policy. Non-bank lenders and private credit funds cost more but can be more flexible on documentation, industry, security or speed. The right choice depends on your situation, and many businesses use more than one. Our article on bank vs non-bank lenders covers the trade-offs in detail.
Comparing cost: rates, fees, and why there's no mandatory comparison rate
Business loans do not have to show a comparison rate, so the headline rate does not tell you the full cost. As YourFinanceGuide points out, business loans are better compared on term, security and total cost.
When comparing offers, ask each lender for:
- The interest rate and whether it is fixed or variable
- Establishment, valuation, legal and documentation fees
- Ongoing fees: monthly account fees, line or limit fees, annual review fees
- Early repayment or break costs
- Any balloon or residual payment at the end
- Covenants and review conditions that could trigger a repricing
Then work out the total dollar cost over the period you expect to keep the loan. That is the number to compare.
Documents to prepare
Full-doc loans use financial statements and tax returns. Alt-doc (or low-doc) loans use other evidence such as BAS or bank statements, usually at a higher cost.
| Full-doc (most banks) | Alt-doc / low-doc (some lenders) |
|---|---|
| Two years of financial statements for the business | Recent BAS statements |
| Two years of tax returns for the business and directors | Business bank statements (often 6–12 months) |
| Year-to-date management accounts | An accountant's letter confirming income |
| ATO portal statement or integrated client account | ATO portal statement |
| Asset and liability statement for directors | Asset and liability statement for directors |
| Details of the purpose: contract, invoice or quote | Details of the purpose: contract, invoice or quote |
Exact requirements depend on the lender, the product and the loan size. A broker can tell you up front what each lender will ask for.
How a broker helps, and how Glenclair is paid
A broker compares options across several lenders, prepares your application the way credit teams assess it, and manages the process through to settlement. That can save time and help you avoid applying to lenders whose policy does not suit your business.
Brokers are commonly paid a commission by the lender, and some also charge a fee. Glenclair Financial will disclose any fee, and the commission we expect to receive, in writing before you proceed. Read more about how we work as a commercial finance broker.
Frequently asked questions
What is commercial finance?
Commercial finance is borrowing for a business purpose, such as buying property or equipment, buying a business or funding working capital. It is assessed mainly on the business's cash flow and the security offered, rather than on personal income alone.
Is commercial finance harder to get than a home loan?
It is usually assessed differently rather than simply being harder. Lenders look at the business's financials, the security offered and the industry, and their policies vary widely from one lender to the next, so a decline from one lender does not mean every lender will say no.
Can I get commercial finance without financials?
Some lenders offer alt-doc or low-doc options that use BAS statements, business bank statements or an accountant's letter in place of full financial statements. These usually cost more than full-doc loans. Bluestone, for example, offers flexible income documentation on some commercial products.
Do business loans have a comparison rate?
There is no mandatory comparison rate for business lending in Australia, so headline rates are not always comparable. Compare the total dollar cost over the term, including establishment, ongoing and early-repayment fees.
Does using a broker cost more?
Brokers are commonly paid a commission by the lender, and some also charge a fee. Glenclair Financial discloses any fee to you in writing before you proceed, so you can weigh it against the options we find.