Key Takeaways
- A ‘good’ commercial loan rate is best defined as one that sits at or below the typical pricing range for a comparable deal in the current market, not as a single universal number.
- Benchmarking is the most reliable way to know if your rate is competitive: multiple indicative offers from suitable lenders on the same deal give you a meaningful range to compare against.
- Borrowers can influence their rate meaningfully by strengthening their financial position, choosing the right lender for the deal, and negotiating at the right moments in the loan’s life.
- Annual reviews and refinancing windows are the natural opportunities to revisit pricing, particularly when the borrower’s position has strengthened or market conditions have shifted.
What ‘Good’ Actually Means in Commercial Lending
Borrowers often ask what a good commercial loan rate looks like, hoping for a benchmark number they can measure their own offer against. A single universal number does not exist; rates vary too widely across deal types, borrower profiles, and lender appetites for one figure to be meaningful. A more useful definition of ‘good’ is a rate that sits at or below the typical pricing range for a comparable deal in the current market.
The other reason a useful definition matters is that it makes the rate something the borrower can act on. A ‘good’ rate is one you can defend against alternative offers, justify against market benchmarks, and negotiate from a position of evidence rather than guesswork. Hence, the focus below is on benchmarking and on what borrowers can do to improve pricing, rather than on the underlying drivers of rate variation (which sit in their own articles).
This guide explains how to benchmark a commercial loan rate against the current market and what borrowers can do to improve pricing without committing to any specific number. If you want to assess your specific situation against current commercial loan options through Loanworx, our brokers can compare your deal against live lender appetites and identify where pricing improvements are realistic.
How to Benchmark a Commercial Loan Rate
Without a universal number to anchor against, benchmarking becomes the most useful activity for assessing whether a rate is competitive. A structured approach to benchmarking produces a much clearer view than working from advertised ranges or industry rumours.
Identify the Comparable Segment First
A useful benchmark needs comparison against a similar deal. Comparable means similar loan amount, similar LVR, similar property type, similar lease arrangements (where applicable), similar industry, and similar borrower profile. Comparing a 65% LVR office loan against a 75% LVR specialised retail loan tells you nothing useful, because the segments are too different.
Gather Multiple Indicative Offers
The most reliable benchmark is two or three indicative offers from suitable lenders on the same deal. The range across the offers tells you where the market sits for your specific situation; the lowest offer becomes the floor for negotiation with your preferred lender. A specialist commercial broker can usually obtain these efficiently without triggering unnecessary credit enquiries on the directors’ files.
Compare Beyond the Headline Rate
Total cost over the planned holding period is the right basis for comparison, not the headline rate alone. Establishment fees, ongoing line fees, annual review fees, valuation costs, legal costs, and exit costs all contribute. A 0.20% rate saving can be wiped out by higher fees on the alternative loan. Modelling the total cost on each offer surfaces real differences the rate alone hides.
Use Directional Reference Points
Some useful directional reference points apply across most commercial deals. Standard commercial property loans typically price 1% to 2% above comparable residential rates for similar borrowers. Specialist commercial and non-bank rates can sit materially higher. A standard commercial rate priced more than 2.5% above current home loan rates warrants closer comparison; one priced below that range is usually competitive for the segment. These are rough markers, not benchmarks for your specific deal.
What Borrowers Can Do to Improve Their Rate
Several practical steps consistently produce better pricing outcomes. None is a guarantee, but each shifts the achievable rate by 0.10% to 0.50% on average, and they compound across a multi-year loan.
Strengthen the Borrower Position Before Applying
Clean financials, current tax lodgements, no outstanding ATO debt, and orderly personal finances all support sharper pricing. The strongest single lever most borrowers have is preparation: addressing weak spots in the application before approaching lenders typically produces better offers than presenting a borderline file. Spending two to three months tidying the position upfront often pays back many times over in the rate offered.
Optimise the LVR Position
Many lenders structure pricing tiers around specific LVR thresholds (often 60%, 65%, 70%, 75%). Just under a threshold can produce a noticeably better rate than just over it. Borrowers close to a threshold often benefit from finding additional cash or security to drop into the lower tier, especially on longer-term loans where the rate saving compounds over time.
Choose the Right Lender for the Deal
Different lenders price the same deal differently because their funding costs, appetites, and competitive positions vary. A specialist lender focused on a particular segment often prices that segment more sharply than a major bank covering it as a side product. Our guide to how lenders price commercial deals explores how lenders approach specialist business assets, with the same framework applying to commercial property and broader commercial lending decisions.
Use a Specialist Commercial Broker
A broker familiar with the commercial lender market can route the deal to lenders most likely to price it competitively. Brokers also know which lenders are currently growing their exposure to specific segments, which is information not visible from advertised rates. For borrowers without the time or specialist knowledge to compare lenders themselves, a broker often produces better pricing outcomes than direct applications.
Negotiate Before Documents Are Drawn
The realistic window to negotiate rate, fees, and structural details is between indicative offer and unconditional approval. Once loan documents are in preparation, changes become harder and slower. Borrowers who plan to negotiate should raise the points clearly at the indicative offer stage, with reference to alternative offers where relevant.
Negotiating Pricing at Annual Reviews
One of the most underused opportunities to improve a commercial loan rate is the annual review. Most commercial loans include a formal review point each year, and the review is a natural moment to revisit pricing with the existing lender.
Why Reviews Are an Opening for Renegotiation
At each review, the lender requests updated financials and reassesses the deal against their current credit policy. Borrowers whose position has strengthened since the original application (better trading results, lower LVR after repayments, longer lease in place, improved credit position) have a legitimate case for a pricing review. Lenders are typically more responsive to rate requests at review points than between them.
Preparing for the Review Conversation
Borrowers who arrive at a review with updated financials, a clear summary of how their position has improved, and indicative offers from alternative lenders are in a much stronger negotiating position. The alternative offers do not need to be formally lodged; they provide concrete reference points the existing lender can match or improve on without losing the relationship.
What to Ask for at Reviews
Common rate-related items to raise at reviews include: a reduction in the headline rate, removal or reduction of line fees, waiver of annual review fees, restructuring to a sharper LVR tier, or extension of an interest-only period at the existing rate. Lenders may not agree to everything, but they typically engage with each request rather than dismissing them collectively.
When Walking Away Is the Right Lever
Where the existing lender will not match competitive market pricing, refinancing to a different lender is the alternative. The decision needs to weigh the rate saving against the upfront refinancing costs (typically 1% to 2% of the loan amount), but for larger loans or longer remaining terms, the savings often justify the move. Existing lenders typically respond differently to a borrower who is genuinely prepared to refinance versus one who is bluffing.
Refinancing as a Pricing Tool
Beyond annual reviews, refinancing to a different lender is the largest single rate-improvement opportunity available to most borrowers. The decision needs to weigh the benefits against the upfront costs, but for many deals refinancing delivers meaningful savings.
When Refinancing Usually Makes Sense
Refinancing is typically worth considering when: the rate gap with current market pricing is 0.50% or more, the existing lender has tightened policy or pricing meaningfully, the borrower needs to release equity for another purpose, or the facility term is approaching maturity and conditions are favourable. Smaller rate improvements rarely justify the upfront costs.
Calculating the Switching Costs
Refinancing carries upfront costs: exit fees on the existing loan (where applicable), new lender establishment fee, valuation fees, legal fees, and mortgage discharge and registration fees. These typically total 1% to 2% of the loan amount. The rate saving needs to recover these costs within a reasonable payback period (usually 12 to 24 months) for the move to make sense.
Planning Refinancing 6 to 12 Months Ahead
The most efficient refinances are planned well in advance. Updated financials, fresh valuations, and indicative offers from alternative lenders can all be arranged before the actual refinance, giving the borrower negotiating leverage with the existing lender or a smooth transition to a new one. Rushed refinances in the final weeks of a facility term usually produce less favourable outcomes.
Using Refinancing Threats Constructively
Sometimes the value of preparing to refinance is in the conversation it triggers with the existing lender, not in the move itself. Existing lenders often match or improve on competitive market offers when they realise the borrower is genuinely prepared to switch. The preparation work (indicative offers, updated financials) is the same in either scenario, so the cost of optionality is low.
Common Mistakes When Evaluating Your Rate
A few recurring mistakes catch borrowers assessing whether their commercial rate is competitive. Each is easy to avoid once recognised.
Treating the First Offer as the Only Number
The most common mistake is accepting a single lender’s offer without benchmarking it against alternatives. Without comparable offers, the borrower has no basis for assessing whether the rate is competitive for the segment. Two or three indicative offers is the minimum threshold for any meaningful comparison.
Comparing to Residential Rates
Residential and commercial loans are priced very differently from each other because they carry very different risk profiles. Comparing a commercial offer directly to home loan rates usually produces an unfavourable view of the commercial rate without acknowledging that the 1% to 2% premium over residential is structural, not negotiable. Commercial rates need to be compared to other commercial rates.
Setting and Forgetting
Treating the rate as fixed once agreed is a costly habit. Commercial rates can be renegotiated at annual reviews, and the market continues to evolve over a loan’s life. Borrowers who track their rate against current market offers and engage actively at review points usually achieve materially better outcomes than those who set and forget.
Focusing Only on the Headline Rate
Fees can quietly add 0.30% to 0.70% to the effective cost of a commercial loan when included in total cost calculations. A loan with a sharp headline rate but high establishment fees, ongoing line fees, and annual review fees can be more expensive than a loan with a slightly higher rate and lower fees. Total cost over the planned holding period is the right comparison basis.
Underestimating Negotiating Power
Many borrowers assume the lender’s initial offer is final. In commercial lending, rate, fees, and structural details are often negotiable, particularly with concrete reference points from alternative lenders. Borrowers who treat the offer as a starting point typically achieve better outcomes than those who treat it as a final answer.
Where to Understand the Wider Rate Environment
Beyond deal-specific benchmarking, commercial loan rates move with the broader interest rate environment. Understanding how monetary policy changes flow through to lending rates helps borrowers calibrate expectations and time their negotiation and refinancing activities.
The Reserve Bank of Australia’s explainer on how interest rate changes flow through to lending rates at rba.gov.au covers how monetary policy decisions affect deposit and lending rates for households and businesses, and what role lender funding costs play in the pass-through. The framework applies directly to commercial lending, where the same mechanisms shape pricing over time.
Frequently Asked Questions (FAQs)
1. How can I tell if my commercial loan rate is competitive?
The most reliable test is benchmarking against indicative offers from two or three suitable lenders on a comparable deal. The range across those offers tells you where the market sits for your specific situation. Without that comparison, any single rate is hard to assess as competitive or not. A specialist commercial broker can usually run this benchmarking efficiently.
2. How much can I save by switching commercial lenders?
Rate savings from switching commercial lenders are usually 0.25% to 0.75% on standard deals, though larger gaps are sometimes possible (particularly when moving between major banks and second-tier banks, or where the existing lender has tightened policy). The savings need to be weighed against switching costs (typically 1% to 2% of the loan amount). For larger loans or longer remaining terms, refinancing usually pays for itself within 12 to 24 months.
3. Can I negotiate a lower commercial loan rate at annual review?
Often yes, particularly when your position has strengthened since the original loan was set up or when market conditions have shifted. Lenders are typically more responsive at review points than between them, and they engage more constructively when the borrower arrives with updated financials and indicative offers from alternative lenders as reference points. The negotiation is more effective when prepared properly than when raised informally.
4. Should I lock in a fixed rate or stay variable?
Both have a place depending on the borrower’s situation and the rate environment. Fixed rates provide certainty for the agreed period (typically 1 to 5 years) but include break costs if the loan is repaid early. Variable rates offer more flexibility and move with market conditions. Some borrowers split their loan between fixed and variable to balance certainty with flexibility. The right choice depends on the cash flow position, the rate outlook, and the planned holding period.
5. Are non-bank commercial loan rates worth considering?
It depends on the deal. Non-bank lenders typically price 2% to 4% above bank rates but offer faster turnaround, higher LVRs, and more flexible structures. For borrowers who can fit comfortably within bank policy, the rate gap usually outweighs the speed advantage. For borrowers needing leverage or speed that banks cannot provide, or covering deals banks decline, non-banks fill a genuine gap, and the higher pricing reflects that positioning.
6. How often should I review my commercial loan rate?
At least annually, ideally aligned with the lender’s formal review point. Tracking your current rate against the rates available in the market produces a clear view of whether your loan is competitive. Larger gaps justify negotiating with the existing lender or exploring refinancing; smaller gaps usually do not justify switching costs but may justify renegotiation at the next natural opportunity.
7. What’s the realistic ceiling on rate improvement through negotiation?
On most commercial loans, structured negotiation can deliver 0.20% to 0.50% in rate improvement, plus modest fee concessions. Larger improvements (0.50% or more) usually require either refinancing to a different lender or a significant strengthening of the borrower’s position since the original loan was set up. Marginal negotiation tweaks may not justify the effort; structural improvements often do.
The Bottom Line
A ‘good’ commercial loan rate in Australia is best defined as one that sits at or below the typical pricing range for a comparable deal in the current market. Without a single universal number, benchmarking against multiple indicative offers becomes the most reliable test, and borrowers who treat rate as something to actively manage rather than passively accept generally achieve better outcomes over the loan’s life.
For most borrowers, the smartest approach is to combine three habits: prepare the borrower position carefully before applying, benchmark indicative offers from suitable lenders before committing, and revisit pricing actively at annual reviews. Across a long commercial loan, even small improvements compound into substantial savings. The borrower who treats rate as a managed variable consistently outperforms the borrower who treats it as a fixed condition.
