Commercial Land Loans: What Lenders Actually Require
Bare land is the hardest commercial asset to finance, because it earns nothing and there is no building to fall back on. Expect a larger deposit than a built property needs, and expect development approval to matter more than almost anything else.
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The short answer
Commercial land is financed more conservatively than built commercial property. Indicative loan-to-value ratios generally sit between about 50 and 70 percent, putting deposits in the range of roughly 30 to 50 percent. Sites with development approval in metropolitan areas reach the better end of that range; raw land without approval, or land in regional or specialised locations, is assessed lower. The reason is straightforward: land produces no income and there is no building to fall back on, so the lender relies on the land’s value and on your ability to service the debt from elsewhere. Interest-only during the holding period is common, and construction finance is a separate facility arranged later.
The short answer
If you are buying a commercial or development site, the first thing to recalibrate is the deposit. Business owners who have financed a warehouse or an office before often assume land will work similarly. It does not, and the gap is significant enough to change what you can afford to buy.
The second thing to understand is that the status of the site matters more than almost any other variable. Two identical parcels, one with development approval and one without, can attract materially different answers from the same lender. That single factor is worth planning around, and this guide explains why.
Why land is treated differently
Every lending decision comes down to two questions: what can be recovered if the loan fails, and where do the repayments come from in the meantime. Bare land answers both questions poorly.
It produces no income. A tenanted commercial building generates rent that services the debt. A vacant block generates nothing, and in fact costs money to hold. So the repayments must come from somewhere else entirely, which shifts the lender’s focus onto you and your business rather than onto the asset.
There is no building to fall back on. If a lender has to realise a warehouse, there is a structure with an established market. Realising bare land means selling into a narrower pool of buyers, and land values move more sharply than improved property in both directions.
The value is harder to pin down. An existing building can be valued against comparable rents and sales. Land is valued substantially on what could be built there, which depends on zoning, approvals, services, access and site constraints. More uncertainty in the valuation means more conservatism in the lending.
Those three factors explain most of what follows: lower loan-to-value ratios, pricing that generally sits above improved commercial property, and considerably more attention to your exit plan.
Deposit and LVR by site type
The table sets out indicative positions across common commercial land scenarios. These are market ranges to help you plan, not quotes, and lender policy varies and changes.
| Site type | Indicative LVR | Indicative deposit |
|---|---|---|
| Approved site, metropolitan, clear build plan | Toward the upper end, around 70 percent | Around 30 percent |
| Zoned commercial land, no approval yet | Commonly 50 to 60 percent | Commonly 40 to 50 percent |
| Land held without a near-term build plan | More conservative again | Assessed case by case |
| Regional, large-acreage or constrained sites | Lower, varies widely by location | Often 40 to 50 percent or more |
| For comparison: built, tenanted commercial property | Generally around 65 to 80 percent | Generally around 20 to 35 percent |
Indicative ranges only, current at the time of writing and subject to lender policy. Not a quote or an offer of finance.
The final row is there deliberately. The difference between financing land and financing a built property is often ten to fifteen percentage points of deposit on the same purchase price, and that gap is the thing to build your plan around. If you are weighing a site against an existing building, the cash requirement is a genuine part of that comparison. Our guide on commercial property loan deposits covers the built-property side in detail.
Development approval changes everything
If there is one lever worth understanding on a commercial land application, this is it.
Development approval tells a lender what can legally be built on the site. That resolves most of the valuation uncertainty described earlier, because a valuer can assess the site against a defined outcome rather than a range of possibilities. It also widens the resale market, since an approved site can be sold to any party wanting to execute that approval.
The practical consequence is that approved sites in established metropolitan areas are the ones that reach the upper end of the lending ranges. Land without approval is assessed on what it is today rather than on what you intend it to become, and the ratio available reflects that.
This does not mean you need approval before you can buy. Plenty of sites are acquired precisely so that the buyer can pursue approval, and there are lenders who fund that. It does mean that:
- Buying without approval generally requires a larger deposit and attracts higher pricing.
- The lender will want to understand your approval strategy and its realistic timeframe.
- If approval is refused or materially altered, your position changes, and it is worth thinking through what happens in that case before you commit.
Zoning sits underneath all of this. A site zoned for the use you intend is a different proposition to one requiring a rezoning, which is a longer and less certain process. Confirm the zoning and any overlays or constraints with the local council and your solicitor before you rely on them, not after.
Where the repayments come from
Because the site earns nothing, the lender needs to see servicing capacity from somewhere else. What that means in practice depends on who you are.
A business buying a site for its own premises. The assessment rests largely on the trading performance of that business. Lenders will generally want to see consistent financials, current Business Activity Statements and evidence that operating cash flow can carry the loan through the holding period and beyond, alongside existing commitments.
A developer or investor. Larger or staged projects may be better suited to development finance than a straightforward land facility, and subdivided sites can fall under commercial lot loans. More weight falls on your experience, your track record on comparable projects, the strength of your overall position, and the credibility of your exit. First-time developers face a harder assessment than experienced ones, which is not unreasonable given what can go wrong between acquisition and completion.
In both cases the exit strategy is a real part of the application rather than a formality. A lender wants to know whether the plan is to build and occupy, build and lease, build and sell, or sell the approved site on. Each implies a different risk profile and a different timeframe, and a vague answer here weakens an otherwise reasonable application.
Moving from land into construction
A point that is frequently misunderstood: the land loan and the construction loan are usually two separate facilities, not one continuous arrangement.
Typically the site is acquired on a land facility, often on interest-only terms through the holding period. When you are ready to build, construction finance is arranged, which commonly refinances the land debt and funds the build progressively against completed stages.
The important consequence is that the construction facility is a fresh assessment. It is not automatic, and it is not guaranteed simply because the land was funded. It will be assessed against conditions at that time: your position then, the lender’s appetite then, the build contract, the builder, and the feasibility of the project as costed at that point rather than as estimated at acquisition.
This is why it is worth forming a realistic view of the construction position before you commit to the land, rather than treating it as next year’s problem. The risk to avoid is owning a site on an interest-only facility that is approaching expiry, with no construction approval in place and no clear route to one. Our guide on how construction progress payments flow covers what that second stage involves.
The holding costs people underestimate
Land costs money to hold while producing nothing. The deposit gets the attention, but holding costs are what strain a plan when timelines slip, and timelines slip regularly.
- Interest across the holding period. On an interest-only facility this is a pure cost with no reduction in the balance.
- Council rates, and land tax where it applies. Land tax treatment depends on the ownership structure and the state, and it is worth confirming with your accountant rather than assuming.
- Professional and approval costs. Planning consultants, surveyors, engineers, and legal costs of pursuing approval. These are incurred before any income exists.
- Site costs. Insurance, securing the site, and any maintenance obligations.
- Time itself. Approval processes commonly take longer than anticipated, and every additional month carries the costs above.
The practical protection is to model a longer holding period than you expect and check that the plan still works. If it only works on the optimistic timeline, the plan is thinner than it appears. This is not a reason to avoid land, which remains one of the more effective ways for a business to secure its own future premises, but it is a reason to go in with the numbers modelled properly.
Read Intellect Finance’s real Google reviews
Land and development finance sits well outside standard bank policy, so a large part of the work is knowing which lenders are genuinely active in this space and how to present a site to them. Here are Intellect Finance’s actual Google reviews, pulled live from our Google Business Profile, so you can see how clients describe the experience. They are real and unedited.
These reviews reflect other borrowers’ experiences. They are not a promise of any particular outcome for your finance, which will always depend on your own circumstances and lender assessment.
How Intellect Finance can help
Land and development finance is a specialist corner of the market, and the lenders genuinely active in it are not always the ones you would approach first. We assess sites across a panel of more than 100 lenders, tell you the deposit range your site and profile realistically support, and structure the holding period with the construction stage in mind rather than as an afterthought. Where a site does not stack up on the numbers, we will say so before you are committed. Commercial and development files are led by Charbel, who handles complex commercial lending day to day. We have operated since 2005, hold Australian Credit Licence 390611, and the service is free to you. For more see our land loan page or our construction loan page.
Frequently Asked
Commercial land finance FAQs
The questions buyers ask most about financing commercial and development land.
How much deposit do I need for a commercial land loan?
More than for a built commercial property. Indicative loan-to-value ratios for commercial land generally sit between about 50 and 70 percent, which puts the deposit in the range of roughly 30 to 50 percent. Where the site has development approval and sits in a metropolitan area, the better end of that range is achievable. Raw land without approval, or land in a regional or specialised location, is assessed more conservatively. These are indicative market positions rather than a quote, and each lender sets its own policy.
Why is vacant land harder to finance than a built property?
Because it produces no income and there is no building to fall back on. A tenanted warehouse generates rent that services the debt and has a clear resale market. Bare land does neither, so the lender is relying entirely on the land’s value and on your capacity to service the loan from other sources. That combination is why loan-to-value ratios are lower, why rates tend to sit higher than on improved commercial property, and why lenders look closely at your exit plan.
Does development approval change what I can borrow?
Substantially. Development approval is probably the single largest variable in a commercial land application. An approved DA tells the lender what can be built, which makes the site’s value far easier to establish and its resale market clearer. Sites with approval in established metropolitan areas can reach the upper end of the loan-to-value range. Land without approval is assessed on what it is now rather than what you hope it will become, and is generally capped lower. You do not need a DA to obtain finance, but its absence affects both your borrowing capacity and your pricing.
Can I get interest-only repayments while I hold the land?
Interest-only is common on commercial land loans and often appropriate, because a site under development produces no income to service principal repayments. The arrangement typically runs through the holding period until the loan converts to construction finance or the completed property begins generating income. The point to plan for is what happens at the end of that period, since interest-only does not reduce the balance and the term will expire.
How does the loan move from land purchase into construction?
Usually as two separate facilities rather than one continuous loan. The land is acquired on a land facility, and when you are ready to build, construction finance is arranged, which commonly refinances the land debt and funds the build in drawdowns against completed stages. That transition is not automatic and it is not guaranteed. Approval for the construction facility is a fresh assessment against conditions at that time, which is why it is worth understanding the likely construction position before you commit to the land.
What do lenders look at besides the land itself?
Serviceability from sources other than the site, because the land itself generates nothing. For a business buying a site to build its own premises, that generally means the trading performance of the business. Lenders will also weigh your experience, particularly on a development, along with zoning, the availability of services and access, the site’s resale prospects, and your exit strategy. Contamination or environmental constraints, and how a site is titled, can also affect what a lender will do.
Can I use equity in another property to fund the deposit?
Often, yes, and on commercial land it is a common approach given how large the required contribution can be. Equity in a residential or commercial property you already own can serve as additional security or fund the contribution directly. It does mean the other property is exposed to the land borrowing, and land is the more volatile asset of the two, so that risk is worth weighing deliberately rather than treating as a formality.
What are the holding costs I should budget for?
Land costs money to hold while it produces nothing, and underestimating this is a common problem. Budget for the interest across the holding period, council rates and any land tax that applies, insurance, and the professional costs of pursuing approvals, which can include planning, survey, engineering and legal fees. If approvals take longer than expected, and they frequently do, those costs continue. Modelling a longer holding period than you expect is a sensible precaution.
The bottom line
Commercial land needs a materially larger deposit than a built commercial property, commonly in the range of 30 to 50 percent against roughly 20 to 35 percent for an improved asset. That gap exists because land earns nothing, offers no building as security, and is harder to value. Development approval is the single largest variable within that range, because it resolves most of the valuation uncertainty and widens the resale market.
The two things worth doing before you commit are modelling a longer holding period than you expect, and forming a realistic view of the construction stage rather than treating it as a later problem. The construction facility is a fresh assessment and it is never guaranteed. Land remains one of the more effective ways for a business to secure its own future premises, but it rewards planning considerably more than it rewards optimism.
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Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, legal, or tax advice. It does not take your personal or financial circumstances into account. Before acting on any information here, you should consider whether it is appropriate to your objectives, financial situation, and needs.
Figures are indicative and move over time. The loan-to-value ratios and deposit ranges in this article are indicative market positions at the time of writing, included to help you plan. They are not a quote, an offer of finance, or a statement of any particular lender’s current policy. Land and development lending policy varies considerably between lenders and changes regularly, and every site and application is assessed on its own merits.
Commercial lending is regulated differently, and approval is never guaranteed. Lending for a predominantly business purpose sits outside the National Consumer Credit Protection Act, so the protections that apply to regulated consumer lending do not apply. Construction finance is a separate facility assessed afresh at the time it is sought; funding a land purchase does not guarantee that construction finance will be available or approved later.
Planning, legal and tax matters sit outside our lane. Zoning, overlays, development approval prospects and site constraints should be confirmed with the relevant council and your planning consultant or solicitor before you rely on them. Contract review and title matters belong with your solicitor or conveyancer. Land tax, GST treatment and the tax position of holding costs belong with your accountant. Intellect Finance provides credit assistance only.
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Fees. Intellect Finance does not charge you a fee for arranging your loan. We are paid by the lender on settlement, not by you. In the rare situations where a fee could apply, it is set out in our Credit Guide and disclosed to you in writing before any work begins, so you are never charged anything you were not told about upfront.
Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees, and terms apply.
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