Lenders typically ask for a deposit of 20% to 35% or more on a commercial property purchase, well above what a standard home loan requires. That gap catches a lot of first-time commercial buyers off guard, especially business owners used to the 5% to 20% deposits common in residential lending. The size of that deposit depends on the property type, the tenant, and how the lender views the risk of the asset itself.
Why Commercial Deposits Sit Higher Than Home Loans
Residential lending benefits from decades of default data, a deep pool of comparable sales and, below 80% loan-to-value ratio, the option of lenders mortgage insurance to cover the lender’s risk. Commercial property doesn’t have the same safety net. Lenders mortgage insurance is rarely available on commercial loans, so the lender carries more of the risk itself and prices the deposit accordingly.
Commercial property values can also move more sharply than residential ones, particularly if a tenant leaves and the asset sits vacant. A commercial loan is priced with that volatility in mind, which is why a 30% deposit is common where a 10% deposit might work for a similar-value house.
What Influences the Deposit a Lender Asks For
Property type matters. Industrial and warehouse assets are generally viewed more favourably than specialised retail or hospitality sites, because industrial buildings tend to suit a wider range of future tenants if the current one leaves. A lender might ask for a 25% deposit on a well-located industrial unit and 35% or more on a single-purpose property like a childcare centre or service station.
Whether the buyer will occupy the property or lease it out also changes the picture. Owner-occupied commercial purchases, where the buyer’s own business will operate from the site, are sometimes assessed more favourably than a purely speculative investment purchase, because the lender can see a direct income source servicing the loan.
Can you use equity instead of cash for a commercial deposit?
In some cases, yes. Borrowers with sufficient equity in an existing residential or commercial property may be able to use that equity as part or all of the deposit, rather than saving cash separately. Lenders still assess the combined loan-to-value ratio across both properties, and terms vary significantly by lender and scenario.
How Loan-to-Value Ratios Work for Commercial Property
Most commercial lenders cap borrowing at 65% to 80% of the property’s value, compared with up to 95% on some residential purchases. Where a property falls within that range depends on the asset class, the strength of any lease in place and the borrower’s own financial position.
A well-tenanted industrial property with a long lease might attract a higher loan-to-value ratio than a vacant retail shop with no confirmed tenant. Lenders read the lease as much as the bricks and mortar, since it’s often the rental income that services the loan.
What a Larger Deposit Can Change
A larger deposit doesn’t just reduce risk for the lender, it can open up more competitive pricing and a wider pool of lenders willing to consider the deal. Some lenders offer sharper rates once the loan sits below 60% loan-to-value ratio, since the buffer between the loan and the property’s value gives them more room if the market moves.
For a $1,000,000 industrial property, the difference between a 25% deposit and a 35% deposit is $100,000 upfront, but it can also mean the difference between a handful of lenders and a genuinely competitive shortlist. Buyers weighing up how much to put down are often better served comparing total cost across a couple of deposit scenarios rather than assuming the minimum is the best move financially.
What Else Lenders Weigh Alongside the Deposit
The deposit is one part of the assessment, not the whole picture. Lenders also look at lease length and tenant quality, the borrower’s serviceability from business or rental income, and whether the purchase sits inside a trust, company or self-managed super fund structure, each of which carries its own documentation requirements.
A shorter lease term, or a tenant with a limited trading history, can push a lender toward a larger deposit even on an otherwise appealing property. Borrowers preparing for a commercial purchase are generally better placed if they have lease documentation, financial statements and an accountant’s input ready before they apply, since tax structuring for commercial property often benefits from professional advice alongside the loan itself.
Key Takeaways
- Commercial property deposits typically range from 20% to 35% or more, well above standard home loan minimums.
- Lenders mortgage insurance is rarely available on commercial loans, which is part of why deposits sit higher.
- Property type and tenant strength both influence how much deposit a lender expects.
- Owner-occupied commercial purchases are sometimes assessed more favourably than purely speculative investment purchases.
- Most commercial lenders cap borrowing between 65% and 80% loan-to-value, depending on the asset and lease in place.
- A larger deposit can open access to sharper pricing and a wider range of lenders, not just lower risk.