Commercial Property Loans in Australia: What Business Owners Get Wrong
Most mistakes here start with one assumption: that the loan behaves like a mortgage. It does not. It expires, it carries covenants, and you can be in default with every payment made on time. Three protections exist, and each one stops at a different number.
The short answer
Business owners treat a commercial facility as a home loan. A commercial facility usually expires long before the balance is repaid, so renewal becomes somebody else’s decision on a date you did not pick. It carries covenants, which are ongoing promises about the business and the property, and you can breach one without missing a payment. The lender can also take a fresh view of what the property is worth during the term, and commercial value follows income rather than comparable sales. Protections do exist and they are better than the “commercial lending is unregulated” line suggests. The 2025 Banking Code of Practice requires subscribing banks to give at least three months notice of a decision not to extend where you are not in default, and unfair contract term law reaches small business loan contracts. Each protection stops at a different threshold, measured a different way, and nobody writes to tell you when you cross one.
The one assumption underneath all of it
Most people buying business premises have bought a house before, and they bring that experience with them. That is where the trouble starts.
A regulated home loan runs to the end of its term. Nobody re-approves it along the way, and unless you stop paying, the lender does not come back to you. Plenty of Australians have held one for decades without a single conversation after settlement.
A commercial facility differs in four ways. None of them are hidden. They sit in the letter of offer, and they get read past because nobody is looking for them.
| Where expectation and instrument part company | What people expect | What a commercial facility commonly does |
|---|---|---|
| Duration | Runs until it is repaid | Has an expiry date, frequently well before the balance is repaid |
| Re-approval | Never happens | Happens at renewal, and sometimes at periodic review |
| Ongoing obligations | Make the repayment | Make the repayment, and keep the promises you made about the business and the property |
| Valuation | Settled at purchase | Can be revisited during the term, depending on what the contract permits |
There is nothing improper in any of it. The lender is funding a business and an income-producing asset rather than a household and a house, and both change over a decade. What catches people out is planning the purchase and never planning the renewal.
A home loan is a decision you make once. A commercial facility is a decision your lender remakes every few years.
Mistake one: assuming the loan runs to the end
There are two numbers in a commercial offer and most borrowers only register one.
The amortisation period is the schedule the repayments are calculated on. It sets what you pay each month, so it is the number people look at.
The facility term is how long the lender has agreed to provide the money before the arrangement must be reviewed, extended or repaid. It is frequently much shorter than the amortisation period, and it governs everything.
When the two differ, a balance remains at expiry. At that point one of three things happens: the lender renews or extends, often after a fresh assessment and sometimes on different terms; you refinance elsewhere; or the balance falls due.
Renewal is the normal outcome. Facilities get extended routinely and most business owners never experience anything else. The exposure is timing, not refusal rates. Renewal is assessed on your business and your property as they stand on that date, not as they stood when you bought. A poor trading year, a tenant who left, a shift in the lender’s appetite for your property type: you find out about all of it at the point where you have least room to move.
The fix takes ten minutes. Find both numbers in your letter of offer, put them in your calendar, and set the reminder six months before expiry instead of six weeks. Six months buys you the market. Six weeks buys you whatever is on the table.
Mistake two: not knowing what you promised
A covenant is a promise you make in the loan contract that continues for the life of the facility. Home loans have almost none that a borrower would notice. Commercial facilities have several, and they are ongoing obligations rather than conditions you satisfy once at settlement.
They come in two broad kinds.
Financial covenants are tested against numbers. The two most common shapes are a loan to value requirement, which tests the balance against the assessed value of the security, and a measure of how comfortably the income covers the interest. Both are tested periodically rather than once.
Non-financial covenants cover conduct. Maintaining insurance and any licences the business needs, not dealing with the secured assets without consent, providing financial information by an agreed date, and continuing to operate the business. These get breached by accident more than the financial ones, because they are administrative and nobody has diarised them.
You can be in default on a commercial facility with every repayment made on time. It is in the contract, and most first-time commercial borrowers have never read that far.
Be proportionate about the consequences. A breach does not mean the loan gets called in. The usual outcomes are a request for information, a repricing, a requirement to reduce the balance, or a condition attached to the next renewal. What it does do is move you from choosing to negotiating. That is the real cost, and half an hour with your contract now avoids it.
The related document question, which is what a lender will want in order to test any of this, is covered in what documents a commercial loan really requires.
Mistake three: assuming the valuation is settled
On a home loan, the valuation happens once and is then irrelevant unless you go looking for equity. On a commercial facility, the loan contract commonly permits the lender to obtain a new valuation during the term.
How commercial property gets valued is what makes this bite. A house is valued against comparable sales. Commercial property is valued against the income it produces, so the assessed value can move for reasons that have nothing to do with the building:
- A lease approaching its end, since remaining lease term is part of what the income is worth.
- A tenant leaving, or a tenant whose own position has changed.
- A change in the rent at review, in either direction.
- A change in what the market will pay for that income, which is outside everybody’s control.
Put a revaluation next to a loan to value covenant and the ratio can move against you on a valuer’s opinion, with nothing on your side having changed. That is why the lease profile of a tenanted property is a finance question, not only a property question.
Two things to do. Read what your contract permits on revaluation, and ask what happens to your covenants if a valuation moves. And when a valuation is obtained, ask for a copy. Valuers are instructed by and report to the lender, and no broker can influence, guarantee or predict a valuation outcome, but you are entitled to ask what the position is.
The deposit side of the same mechanism, including what a valuation shortfall actually costs you in cash at purchase, is covered in our guide to the deposit a commercial property loan needs.
Three protections, three different thresholds
Commercial lending sits outside the consumer credit regime, and that gets repeated so often that borrowers assume they have no protections at all. There are three that matter. Each one has its own eligibility test, each test is measured differently, and a growing business can fall out of them one at a time without anyone writing to say so.
| Protection | Who it covers | Where it stops |
|---|---|---|
| 2025 Banking Code of Practice, small business commitments | Customers of banks that are ABA members and have adopted the Code | The Code’s own small business test, which now uses a total debt threshold of $5 million, raised from $3 million |
| Unfair contract terms, financial products and services | Standard form contracts with a business of fewer than 100 employees at signing, or turnover under $10 million last income year | An upfront contract price above $5 million |
| AFCA external dispute resolution | A small business, being an organisation with fewer than 100 employees, with group aggregation applying | A credit facility above $6,317,000 for small businesses and primary producers |
Two of those numbers are $5 million and they are not the same $5 million. The Banking Code threshold is measured on your total debt, and it counts undrawn amounts under existing facilities as well as the loan you are applying for. The unfair contract terms threshold is measured on the upfront price of the particular contract. A business with $3.5 million drawn and a $1.8 million line it has never touched is over the Code threshold while each individual contract sits well under the unfair contract terms cap.
An undrawn facility you keep for emergencies counts toward the Banking Code threshold. You can lose a protection by arranging a line of credit you never use.
The Banking Code of Practice
The 2025 Banking Code of Practice took effect on 28 February 2025. ASIC approved it, and the rules in the Code are binding on the Australian Banking Association’s members and form part of the contracts between banks and their customers. Among the changes ASIC identified was the expansion of the small business definition from $3 million in aggregate borrowings to $5 million, which ASIC noted would make another 10,000 businesses eligible.
For small business loans the Code contains commitments that bear directly on everything above. In summary, and these are summaries rather than quotations:
- Non-payment defaults must be dealt with in the loan terms and conditions, which specify how and when the bank can enforce for defaults other than payment defaults.
- Materiality. The bank will only act on a specific event of default where the event is material by its nature, or the bank reasonably considers it has had or is likely to have a material impact.
- Material adverse change clauses. The bank will not include an event of default based on unspecified material adverse changes in any standard form small business loan contract.
- Not extending your loan. Where you are not in default, the bank will give notice of a decision not to extend the loan at least three months before you need to repay it in full.
That last commitment answers mistake one directly, and hardly any borrower knows it is there.
Where it stops. The Code binds banks that are ABA members and have signed up to it. A non-bank commercial lender is not bound by it, which is worth knowing if your facility sits with a non-bank lender. The commitments also depend on your facility meeting the Code’s own small business test. If it matters to your position, ask your bank directly whether your facility is a small business loan for Code purposes and get the answer in writing.
Unfair contract terms
ASIC administers unfair contract term protections for small businesses. A business qualifies where it employs fewer than 100 people at the time the contract is signed, or had turnover in the last income year of less than $10 million, and for financial products and services the protections apply where the upfront price does not exceed $5 million. The contract must be a standard form contract.
A term may be unfair where it would cause a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the party it benefits, and would cause detriment to the small business. A court can declare a term or the contract void, vary it, refuse to enforce it, prevent the same or a substantially similar term appearing in future standard form contracts, and order a refund. A civil penalty regime has applied since October 2023.
AFCA
AFCA defines a small business as an organisation with fewer than 100 employees, and cannot consider a complaint where the business is part of a group employing 100 or more. Its monetary restriction covers credit facilities up to $6,317,000 for small businesses and primary producers, a figure adjusted periodically. Membership is compulsory for licensed financial services providers, the service is free, and determinations bind the firm.
Worth knowing what AFCA will and will not weigh. Because responsible lending obligations do not apply to small business lending, AFCA does not apply them, the National Credit Code, or RG 209 to a small business loan complaint, and there is no test of unsuitability. What it does apply is the implied warranty in the ASIC Act that a service will be provided with due care and skill, the prohibitions on misleading and unconscionable conduct, good industry practice, and codes of practice. The mechanism that puts your facility on that side of the line is covered in our guide to the business purpose declaration.
Whether any of these apply to you is a legal question for your solicitor, not something this page can determine.
Not sure what your facility actually says?
Bring your letter of offer. We will find the expiry date, the covenants and the revaluation position, and tell you what is worth doing about them and when. If the answer is that your facility is fine as it stands, we will say that too. Our licence is ACL 390611, searchable on ASIC’s professional registers. What we charge you: nothing, on any loan type.
What to do instead
Four habits. None of them need a broker.
Diarise the expiry. Settlement is the day everyone celebrates. Expiry is the day that decides what happens next. Put it in the calendar with a six month reminder, and put the periodic review dates in as well if the facility has them.
Keep the covenant list somewhere you will find it. One page. Which covenants apply, what each is measured against, when each is tested, and what you have to provide and by when. Non-financial covenants get breached through administration rather than money, and a one-page list heads off most of it.
Manage the lease profile as a finance matter. If the property is tenanted, the lease expiry dates belong on the same page as the facility expiry. A lease running out shortly before a facility renewal puts you in a worse position than the same lease running out shortly after, and you can sometimes influence that sequencing.
Tell the lender before they find out. If a covenant is going to be breached, or a tenant is leaving, or the year has been poor, a conversation you start lands differently from a discovery they make. Their response depends on whether they think they have the full picture.
Six months of notice is usually the difference between a routine renewal and a difficult one. The notice is sitting in your own paperwork.
Five questions before you sign
Ask the lender or the broker, before documents are issued. All five have short factual answers. If someone cannot give you one, that tells you something too.
| Ask | What you are listening for |
|---|---|
| What is the facility term, and what is the amortisation period? | If they differ, and they usually do, what balance is expected to be outstanding at expiry. |
| What covenants apply, how often is each tested, and what do I have to provide? | Ask for it in writing. You want the list, not a reassurance that they are standard. |
| Can you revalue the property during the term, and what happens to my covenants if the valuation moves? | Hardly anyone asks this one, and the answer sets your exposure for the whole term. |
| What can put me in default other than missing a payment? | And, if the lender is a Code subscribing bank, whether the facility is a small business loan for Code purposes. |
| What happens at expiry, and when will you tell me your decision? | The Banking Code answer, where it applies, is at least three months before repayment is due. Find out whether your lender is bound by it. |
Related reading in this cluster: owner-occupier versus investor commercial loans covers how the two are assessed and the loan to value position by property type, and financing a business acquisition covers the case where you are buying the business rather than the building.
Read Intellect Finance’s Google reviews
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These reviews reflect other clients’ experiences. They are not a promise of any particular outcome for your finance, which will always depend on your circumstances, the security and the lender’s assessment.
Frequently Asked
Commercial Facility Questions
The questions that matter after settlement, not before it.
What do business owners most often get wrong about commercial property finance?
They assume it behaves like a home loan, and almost every specific mistake follows from that one. A home loan runs to the end of its term and is never re-approved along the way. A commercial facility commonly has an expiry date well before the loan is repaid, carries promises about the business and the property that continue for the life of the facility, allows the lender to form a new view of what the property is worth while you still hold it, and can put you in default for something other than a missed payment. None of that is unusual in commercial lending. The trouble comes from planning the purchase without planning the renewal.
What is the difference between the facility term and the amortisation period?
The amortisation period is the schedule your repayments are calculated on, so it sets the monthly figure. The facility term is how long the lender has agreed to provide the money before the arrangement must be reviewed, extended or repaid. The facility term is frequently much shorter, which means a balance remains outstanding at expiry. Both numbers are in your letter of offer, and the facility term is the one that governs what happens to you.
What happens when a commercial loan term expires?
One of three things. The lender renews or extends, often after a fresh assessment and sometimes on different terms. You refinance elsewhere. Or the balance falls due. Renewal is the normal outcome and most business owners never experience anything else, so the exposure is timing rather than refusal rates. The assessment is made on your business and property as they stand on that date, which is why six months of notice is worth considerably more than six weeks.
Does my bank have to tell me if it will not extend my loan?
If your bank subscribes to the Banking Code of Practice and your facility is a small business loan for Code purposes, the Code commits the bank to giving you notice of a decision not to extend at least three months before you need to repay in full, where you are not in default. Two conditions sit behind that. The Code binds banks that are ABA members and have adopted it, so a non-bank lender is not covered, and your facility has to meet the Code’s own small business test. Ask your bank in writing whether your facility qualifies.
What counts as a small business under the Banking Code?
The 2025 Code, in effect from 28 February 2025, raised the total debt threshold in the small business definition from $3 million to $5 million, which ASIC noted would make around another 10,000 businesses eligible. The threshold is measured on total debt and counts undrawn amounts under existing loans as well as any loan being applied for, so an unused line of credit can push you over it. Because the definition has more than one limb and the consequences are contractual, confirm your position with your bank in writing rather than working it out yourself.
What is a loan covenant and what happens if I breach one?
A covenant is a promise in the loan contract that continues for the life of the facility. Financial covenants are tested against numbers, commonly a loan to value requirement and a measure of how comfortably income covers interest. Non-financial covenants cover conduct: maintaining insurance and licences, not dealing with secured assets without consent, providing financial information on time, and continuing to operate the business. A breach rarely means the loan is called in. The usual outcomes are a request for information, a repricing, a requirement to reduce the balance, or a condition at the next renewal. The real cost is that it moves you from choosing to negotiating.
Can a lender default me for something other than missing a payment?
Yes, and this surprises most first-time commercial borrowers. Breaching a covenant is an event of default under the contract whether or not every repayment has been made on time. Where the Banking Code applies, it commits the bank to specifying in the loan terms how and when it can enforce for defaults other than payment defaults, and to acting on a specific event of default only where the event is material by its nature or the bank reasonably considers it has had or is likely to have a material impact. The Code also commits subscribing banks not to include an event of default based on unspecified material adverse changes in a standard form small business loan contract.
Can my lender revalue my commercial property during the loan?
Commonly yes, where the loan contract permits it, and this is worth checking before you sign rather than afterwards. It matters because commercial property is valued against the income it produces rather than against comparable sales, so the assessed value can move on a lease approaching its end, a tenant leaving, a rent review in either direction, or a change in what the market will pay for that income. Put a revaluation next to a loan to value covenant and the ratio can move against you with nothing on your side having changed.
Do unfair contract term protections apply to my business loan?
They can. The contract must be a standard form contract, and the business must employ fewer than 100 people at the time the contract is signed or have had turnover under $10 million in the last income year. For financial products and services the protections apply where the upfront price does not exceed $5 million. A term may be unfair where it causes a significant imbalance in the parties’ rights, is not reasonably necessary to protect the legitimate interests of the party it benefits, and would cause detriment. Whether a particular term is unfair is decided by a court, not by ASIC, a broker or this page.
Can I take a commercial facility dispute to AFCA?
If you meet its tests. AFCA defines a small business as an organisation with fewer than 100 employees, and cannot consider a complaint where the business is part of a group employing 100 or more. Its monetary restriction covers credit facilities up to $6,317,000 for small businesses and primary producers, adjusted periodically. Note what AFCA will not weigh: because responsible lending obligations do not apply to small business lending, AFCA does not apply them, the National Credit Code or RG 209, and there is no test of unsuitability. It does apply the ASIC Act implied warranty of due care and skill, the prohibitions on misleading and unconscionable conduct, good industry practice and codes of practice.
Why do the protections all stop at different numbers?
Because they were written by different bodies for different purposes. The Banking Code’s small business test is measured on total debt, now $5 million, including undrawn amounts. The unfair contract terms cap for financial products is measured on the upfront price of the particular contract, also $5 million but a different measurement. AFCA’s credit facility limit is $6,317,000 and is indexed periodically. A growing business can cross out of them one at a time, in an order that depends on how it is structured, and nobody sends a letter about it.
The honest bottom line
Commercial property finance is not harder than residential finance. It is different, and reading it with residential expectations is what causes the damage.
Three things to take away. The facility has an expiry date that is not the same as the repayment schedule, and it is the date that matters. You have made ongoing promises, and you can breach them without ever missing a payment. And the valuation is not settled at purchase, which matters because commercial value follows income rather than the building.
Protections exist, and they are better than the “commercial lending is unregulated” line suggests. They also stop, at three different numbers, measured three different ways. The one most likely to catch you out is the Banking Code threshold, because it counts money you have not borrowed yet. Find out which side of each line you sit on before you need to know.
Joseph Sukkar
Joseph founded Intellect Finance in Penrith in 2005 and has worked in Australian finance for more than 25 years. A broker earns their place before the offer is accepted, by knowing which lenders have appetite for your property type and structure and by reading the terms for the things above rather than only for the rate. After settlement the value is having someone who looks at a renewal six months out instead of six weeks out. Commercial and specialist applications are led by Charbel. Intellect Finance charges clients no fee on any loan type. More about the team, or see our commercial property loan page.
Sources
ASIC, media release 24-136MR ASIC approves enhanced Banking Code of Practice, for the approval of the revised Code, its commencement on 28 February 2025, the expansion of the small business definition from $3 million in aggregate borrowings to $5 million with around another 10,000 businesses becoming eligible, and the statement that the rules in the Code are binding on the ABA’s members and form part of the contracts between banks and their customers. asic.gov.au
Australian Banking Association, Banking Code of Practice effective 28 February 2025, for the small business commitments summarised on this page concerning non-payment defaults, materiality, material adverse change clauses in standard form small business loan contracts, and notice of a decision not to extend a loan. ausbanking.org.au
ASIC, Unfair contract term protections for small businesses, for the coverage test of fewer than 100 employees at the time the contract is signed or turnover under $10 million in the last income year, the $5 million upfront price cap for financial products and services, the requirement that the contract be a standard form contract, the three-limb test for unfairness, the remedies available to a court, and the civil penalty regime commencing October 2023. asic.gov.au
Australian Financial Complaints Authority, Small businesses with a financial complaint, for the definition of a small business as an organisation with fewer than 100 employees and the related group exclusion, the categories of business finance complaints AFCA can consider, the compulsory membership and binding determinations, the application of the ASIC Act implied warranty of due care and skill and the prohibitions on misleading and unconscionable conduct, and the statements that responsible lending obligations do not apply to small business lending and that there is no test of unsuitability. afca.org.au
Australian Financial Complaints Authority, AFCA’s compensation caps and monetary limits adjusted, for the monetary restriction covering credit facilities not exceeding $6,317,000 for small businesses and primary producers, effective 1 January 2024, and the requirement to adjust monetary limits every three years. afca.org.au
Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, legal, investment or tax advice. It does not take your personal or business circumstances into account and is not a recommendation to enter into, refinance or vary any facility. Before acting on any information here you should obtain advice from appropriately qualified professionals.
This is not legal advice. Loan contracts, covenants, events of default, guarantees, leases and questions about whether a contract term is unfair are legal matters with legal consequences. Intellect Finance holds a credit licence and is not a law firm. The descriptions of the Banking Code of Practice, the unfair contract term regime and AFCA’s jurisdiction on this page are general summaries of published material, not legal opinions, and not statements about how anything applies to your contract. Take your own legal advice.
About the Banking Code material. The commencement date of 28 February 2025, the binding effect of the Code on ABA members, and the expansion of the small business definition from $3 million to $5 million in aggregate borrowings are as published by ASIC in media release 24-136MR. The small business commitments listed on this page are summaries rather than quotations, drawn from the published 2025 Banking Code of Practice as reviewed on 31 July 2026; they could not be independently re-extracted from the published document when this page was updated on 11 September 2026, so treat them as a guide to what to ask about rather than as the operative wording. The Code’s small business definition has more than one limb and only the debt threshold is reproduced here. The Code binds banks that are members of the Australian Banking Association and have adopted it, and does not bind lenders that are not subscribers. Whether any Code commitment applies to your facility depends on your lender and on whether your facility meets the Code’s definitions. Confirm this with your bank in writing. Codes are amended over time.
About the unfair contract terms and AFCA material. The thresholds and tests are as published by ASIC and AFCA and reviewed on 11 September 2026. Whether a term in a particular contract is unfair is determined by a court, not by ASIC, a broker or this page. AFCA’s Rules are updated from time to time and its monetary limits are adjusted periodically, so the credit facility figure will change. Nothing here is a statement about whether AFCA would accept any particular complaint.
Facility features vary and this page describes general patterns. Facility terms, amortisation periods, covenant types and testing frequency, revaluation rights and review arrangements differ between lenders, facilities and transactions and change without notice. Nothing here describes what your facility contains. Your letter of offer and loan contract are the only documents that do.
Valuations. Valuations are instructed by and reported to the lender, and valuers work to their own standards. No broker can influence, guarantee or predict a valuation outcome. Nothing on this page predicts the direction of commercial property values, rents or yields.
Approval and renewal are never guaranteed. All lending, and any decision to extend or renew a facility, is subject to lender assessment, credit criteria, valuation and lender policy. No broker can guarantee approval, renewal, a particular structure, pricing, a covenant waiver or a timeframe.
Regulatory framework. Credit provided wholly or predominantly for business purposes is not regulated by the National Credit Code, so the responsible lending obligations in Chapter 3 of the National Consumer Credit Protection Act 2009 do not apply to it. Best Interests Duty applies to mortgage brokers in relation to credit assistance provided on regulated consumer credit and does not extend to predominantly business purpose lending. Whether particular credit is regulated depends on the facts and is a question for the lender and, where relevant, your solicitor or accountant.
No rate claims. This page publishes no interest rates, comparison rates or pricing comparisons between lenders, and names no lenders. Any rate or fee should be confirmed in writing against an actual offer.
What we charge you. Nothing, on any loan type. No arrangement fee for residential, commercial, corporate, asset, SMSF or personal lending, no fee for complex or specialist lending, and no clawback recovery fee if a facility is discharged early. Lenders pay us a commission on settlement, disclosed to you in writing in our Credit Guide before we provide credit assistance. This statement describes Intellect Finance only, and other brokers’ arrangements are set out in their own Credit Guides.
About the reviews shown. The reviews displayed on this page are genuine reviews published by clients on Intellect Finance’s Google Business Profile, shown live via a third-party reviews widget. They reflect those individuals’ own experiences and are not a promise of any particular outcome.
Other professionals. Loan contracts, covenants, guarantees, leases and title to your solicitor. Financial statements, structure and tax position to your accountant or registered tax agent. Free small business support is available through the Australian Small Business and Family Enterprise Ombudsman. If you are having difficulty meeting repayments, contact your lender’s hardship team, and free independent help is available from the National Debt Helpline on 1800 007 007.
Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees and terms apply. All applications are subject to lender assessment and approval. Article checked 11 September 2026.
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