Key Takeaways
- Standard commercial property loans typically require a deposit of 25% to 35% of the purchase price, since loan to value ratios (LVRs) are usually capped between 65% and 75%.
- Specialised property types such as service stations, childcare centres, pubs, and hotels often need larger deposits (35% to 45%) because of tighter LVR caps.
- Equity in an existing property can substitute for cash deposit in many cases, materially reducing the upfront capital needed.
- Beyond the deposit itself, transaction costs (stamp duty, legal fees, valuation fees, lender fees) add several percent more to the total cash required at settlement.
Why Deposit Size Is the First Question for Most Buyers
Deposit is often the first practical question commercial property buyers ask, and it deserves a clear answer. Unlike residential lending, which can stretch to 95% LVR with lenders mortgage insurance (LMI), commercial property lending caps LVR much tighter. The result is a meaningfully larger upfront contribution, which directly affects timing, strategy, and the type of property a buyer can realistically pursue.
The other reason deposit is worth understanding in detail is that the headline number rarely tells the full story. Property type, loan structure, additional security, source of funds, and transaction costs all affect the cash actually needed at settlement. Hence, buyers who understand each component can plan more accurately and avoid the funding gaps that often emerge in the final weeks before settlement.
This guide explains how commercial property loan deposits are calculated in Australia, why property type matters so much, and how equity can reduce the cash contribution required. If you want to walk through your deposit position for a specific deal, speak with our commercial finance specialists to map out the right structure before you sign a contract.
Typical Deposit Expectations
Most borrowers underestimate the deposit required for commercial property because they extrapolate from residential lending. Commercial caps are much tighter, and they vary significantly by property type and lender.
Standard Commercial Property
For standard commercial property such as metropolitan offices, retail shops, modern industrial units, and small warehouses, lenders typically allow LVRs of 65% to 75%. This means a deposit of 25% to 35% of the purchase price is the norm. A $1 million property usually requires $250,000 to $350,000 in cash or equivalent equity, depending on the lender and the deal.
Specialised Property
Specialised property such as service stations, childcare centres, pubs, hotels, motels, and medical centres typically attracts tighter LVR caps. A 55% to 65% LVR is common, which translates into deposits of 35% to 45% of the purchase price. Some specialised assets sit even tighter, particularly when the property’s operational performance is integral to its value.
Mixed-Use Property
Mixed-use properties (such as a shop with residential apartments above) are usually classified as commercial because of the commercial component. LVRs are generally in line with standard commercial property, although some lenders take a stricter view if the residential portion dominates the income. The 25% to 35% deposit range typically still applies.
Owner-Occupier Versus Investment
Some lenders offer slightly better LVRs for owner-occupier commercial purchases, where the business buying the premises will also operate from them. The improvement is usually modest, in the order of 5%, and it reflects the additional commitment the borrower is making by operating from their own premises.
LVR Ranges Explained
LVR is the formal mechanism behind every deposit calculation. Understanding how LVR works, and how lenders treat it differently from one property type to the next, makes deposit conversations far clearer.
How LVR Is Calculated
LVR is the loan amount expressed as a percentage of the security’s value. A $750,000 loan against a $1 million property has an LVR of 75%. The value used in the calculation is the lender’s independent valuation, not the contract price. If the valuation comes in below contract, the LVR is recalculated on the lower number and the required deposit increases accordingly.
Standard LVR Caps by Property Type
Standard metropolitan commercial property typically caps at 70% to 75% LVR. Standard regional commercial property is often 5% lower. Specialised property (service stations, childcare centres, pubs) typically caps at 55% to 65%. Vacant commercial land or development sites usually cap lower again, often around 50% to 60%.
Why Lenders Cap LVRs Tighter than Residential
Commercial property is treated as higher risk than residential for several reasons: business income that supports repayments can fluctuate, commercial property markets are smaller and slower to clear, specialised assets are harder to resell, and LMI is not generally available to cover the gap. Lenders manage this risk by requiring more equity upfront from the borrower.
Where LVRs Can Be Higher
Some borrowers can access higher LVRs by offering additional security (such as residential property used as cover), providing stronger personal financials, or selecting a property with exceptional lease quality. Specialist commercial lenders also sometimes accept higher LVRs at the cost of higher pricing or tighter covenants.
Why Property Type Matters so Much
Property type is the single biggest driver of deposit size in commercial lending. Two buildings on the same street can require dramatically different deposits if they fall into different lender categories.
Standard Versus Specialised
Lenders categorise commercial property into broad bands based on resale liquidity. Standard property has a large pool of potential buyers and tenants; specialised property has a narrower market. The wider the resale market, the more confident the lender is in recovering funds if the loan ever defaults, and the higher the LVR they will accept.
Operating Versus Investment Property
Property where the building’s value is closely tied to the business operating in it (such as service stations, hotels, or pubs) carries additional risk because the asset’s value can change with operational performance. Pure investment property with a passive lease to a third-party tenant separates the building’s value from the tenant’s business, which is treated more favourably.
Location Considerations
Metropolitan property in major capital cities typically attracts the best LVRs and the most competitive pricing because the markets are deepest and the resale pool is largest. Regional property usually carries tighter LVRs, particularly outside the major regional centres. Rural and remote property tightens further again.
Building Quality and Age
Modern, well-maintained buildings with current compliance certifications are valued more favourably than older buildings requiring significant capital expenditure. For older buildings, lenders sometimes apply a discount in the valuation that effectively reduces the LVR available, even if the property would otherwise sit in the standard category.
How Equity Can Reduce the Cash Contribution
One of the most useful features of commercial lending is that the deposit does not always have to come from cash. Equity in another property can substitute for some or all of the cash contribution, which materially changes the upfront capital required.
Using Equity in an Existing Property
Borrowers with equity in residential or commercial property they already own can often use that equity as part of their contribution. The lender either takes a second mortgage on the existing property or restructures the existing loan to release equity, which is then applied to the new purchase. The new deal is effectively funded by combining the new loan with the released equity.
How Much Equity Is Usable
The usable equity depends on the existing property’s value and the existing debt against it. Lenders generally allow a maximum LVR on the existing property (typically 80% for residential, 65% to 75% for commercial), so the usable equity is the property’s value at that maximum LVR less the existing debt. A property worth $1 million with $400,000 in existing debt can usually release around $400,000 of equity (80% of $1 million less the existing $400,000).
Trade-Offs of Using Equity
Releasing equity instead of contributing cash preserves cash for other purposes, but it increases total debt and ties the existing property to the new purchase through the lender. Cross-collateralisation reduces future flexibility, since selling or refinancing one property usually requires the lender’s agreement on the other.
Personal Guarantees and Borrower Commitment
Even where equity reduces the cash contribution, lenders still want to see meaningful borrower commitment to the deal. Personal guarantees from directors and beneficial owners are a standard condition, particularly for company and trust borrowers. Our guide to personal guarantees on commercial loans covers what borrowers are actually signing and how the wording affects personal exposure alongside the deposit and equity contribution.
Source of Deposit Funds
Lenders also care about where the deposit comes from, not just how much it is. Documentation around the source of funds is a routine part of the assessment and can affect the application’s progress.
Genuine Savings and Retained Earnings
Genuine savings accumulated over time, or retained earnings in a business, are treated favourably. Bank statements showing the funds held over a sustained period (typically three to six months) are usually enough evidence, supported by Business Activity Statements (BAS) and financials confirming the earnings origin. This is the lowest-friction source of deposit from a lender’s perspective.
Sale Proceeds
Proceeds from the sale of another property or business are accepted, with documentation showing the sale contract, settlement statement, and the funds arriving in a transactional account. If the sale is yet to settle but is contracted, some lenders will accept it as a future source of funds for the deposit.
Gifts and Family Contributions
Where the deposit involves a gift from family, lenders usually require a statutory declaration confirming the funds are a genuine gift rather than a loan. The gifting family member’s bank statements may also be requested. This source is less common in commercial than residential, but it does happen with smaller deals.
Borrowed Funds
Borrowed deposits (from another lender, a related party, or a personal loan) attract closer scrutiny because they increase the borrower’s overall debt position. Some lenders accept borrowed deposits in commercial lending; others do not. Where they are accepted, the additional debt must be factored into the serviceability calculations.
Beyond the Deposit: Transaction Costs
The deposit is the largest single cash item, but it is far from the only one. Transaction costs typically add several percent to the total cash required at settlement, and borrowers who plan only for the deposit are often caught short.
Stamp Duty and Land Transfer Costs
Stamp duty (or land transfer duty) is usually the largest transaction cost. The amount varies by state and by property value, but for a $1 million commercial property in most states, stamp duty alone can run to $50,000 to $60,000. Borrowers should check the rate that applies in their state and budget accordingly.
Legal and Conveyancing Fees
Commercial conveyancing costs more than residential because of the additional document review involved (leases, easements, planning permits, special conditions). Typical legal fees range from $2,000 to $7,000 depending on the complexity of the transaction. Larger or more complex deals can run higher.
Valuation Fees
Lender valuation fees on commercial property are usually $1,500 to $4,000 for standard property, with specialised assets and larger properties costing more. These fees are paid upfront and are non-refundable, regardless of whether the loan settles.
Lender Fees and Mortgage Registration
Establishment fees from commercial lenders typically range from 0.5% to 1.5% of the loan amount. Mortgage registration and discharge fees are set by state titles offices and usually add a few hundred dollars. Some lenders also charge legal review fees for the loan documents.
Other Settlement Costs
Depending on the deal, additional costs may include building and pest inspections, environmental reports (for industrial property), pre-settlement insurance arrangements, and adjustments for outgoings paid in advance by the vendor (such as rates and land tax).
Practical Pointers for Building Your Deposit Position
Most borrowers benefit from spending time on the deposit position well before signing a contract. A few practical habits consistently produce stronger outcomes.
Calculate the Total Cash Required
Add up the deposit, stamp duty, legal fees, valuation fees, lender fees, mortgage registration, and any other settlement costs to get the total cash required. For most commercial property purchases, the total upfront cash is the deposit plus around 4% to 7% of the property value, depending on the state and the complexity of the deal.
Hold Funds in Cleared Accounts
Lenders treat very recently received funds with extra scrutiny. Holding deposit funds in a transactional account for at least three months before settlement establishes the funds as cleared and reduces additional verification requirements. Last-minute funding sources usually trigger questions that can slow the assessment.
Map Available Equity Carefully
If you are using equity from an existing property, get the existing lender’s current loan balance, an indicative valuation of the property, and the usable equity calculation done early. This avoids the common scenario of contracting on a new property only to discover the equity is less than expected.
Build a Buffer for Valuation Surprises
Having additional deposit available, or additional security on standby, gives the borrower options if the lender’s valuation comes in below the contract price. Borrowers who plan only for the best-case outcome can find themselves under pressure if results fall short.
Where to Get Accurate Numbers for Your State
Stamp duty (or land transfer duty) is usually the largest transaction cost beyond the deposit itself, and the calculation varies significantly by state and by property type. Getting an accurate estimate early helps borrowers plan the total cash required rather than discovering the figure in the final weeks before settlement.
Victoria’s State Revenue Office covers land transfer (stamp) duty for buying property in plain language, including how it is calculated, when it falls due, and what concessions might apply. Borrowers in other states can find equivalent information through their state revenue office.
Frequently Asked Questions (FAQs)
1. Can I get a commercial property loan with a 20% deposit?
In limited cases, yes. Standard commercial property typically caps at 75% LVR, which means a 25% deposit. Reaching 80% LVR (a 20% deposit) usually requires offering additional security such as a residential property, having an exceptional borrower profile, or finding a specialist lender willing to consider higher LVRs at the cost of tighter terms or higher pricing. A 20% deposit is not the norm in standard commercial property lending.
2. Is the deposit the only cash I need at settlement?
No. Beyond the deposit, you also need to cover stamp duty, legal fees, valuation fees, lender’s establishment fees, mortgage registration, building inspections, environmental reports (where required), and adjustments at settlement. For most commercial property purchases, transaction costs add another 4% to 7% of the property value on top of the deposit. The full cash requirement is the deposit plus these additional costs.
3. Can I use equity in my home as a deposit for commercial property?
Yes, in many cases. Lenders allow equity in residential property to substitute for some or all of the cash deposit, either through a second mortgage on the existing property or by restructuring the existing home loan to release equity. The usable equity is usually the property’s value at 80% LVR less the existing debt. Using home equity preserves cash but ties the home into the commercial deal, which has implications worth weighing carefully.
4. Do specialised properties really need a 45% deposit?
Often yes. Specialised property such as service stations, childcare centres, pubs, hotels, and certain medical or accommodation assets typically caps at 55% to 65% LVR, which means deposits of 35% to 45%. Some specialised assets are tighter still. The driver is the smaller resale market and the closer link between the property’s value and the business operating from it. Specialist lenders sometimes offer slightly better terms, but the gap rarely closes to standard commercial levels.
5. Can my business use retained earnings as the deposit?
Yes. Retained earnings held in the business are treated as a legitimate source of deposit, and lenders generally view them favourably because they represent genuine accumulated capital rather than borrowed funds. Documentation usually requires the business’s financial statements showing the retained earnings and the bank account holding the funds. Where the retained earnings are very recent, the lender may want additional context.
6. What deposit do I need if I am buying through my SMSF?
Self managed super fund (SMSF) commercial property lending under a limited recourse borrowing arrangement (LRBA) typically caps at 65% to 70% LVR, which means deposits of 30% to 35% from the fund. The deposit must come from the SMSF itself rather than from members personally, and the fund must demonstrate that the purchase is consistent with its investment strategy and the sole purpose test. Specialist advice is essential.
7. How long should I hold deposit funds before applying?
Most lenders want to see deposit funds held in a transactional account for at least three months. This establishes the funds as cleared rather than recently received. Where funds have been received more recently (such as sale proceeds or a business distribution), the lender will usually ask for additional documentation showing the source. Planning the deposit position three to six months before applying generally produces the smoothest assessment.
The Bottom Line
Commercial property loan deposits sit meaningfully above residential expectations: 25% to 35% for standard property, 35% to 45% for specialised assets, with transaction costs adding several percent more on top. The headline numbers can look intimidating, but borrowers have more flexibility than the percentages suggest. Equity in existing property, retained earnings, additional security, and the right lender choice can all combine to make the cash position manageable.
For most buyers, the smartest move is to map the full deposit and cost picture well before signing a contract. A few weeks of structured planning, on the deposit itself, the equity available, the source of funds, and the transaction costs, almost always produces a smoother application and a more flexible structure than a rushed deal pushed through in the final weeks before settlement.
