Commercial Property Borrowing Capacity Calculator

This is probably the most important thing to understand before you start looking at properties, because almost everyone gets it wrong initially. Residential lenders use income multiples, meaning they look at how many times your annual salary the loan represents. Commercial lenders work completely differently. They use a metric called the Debt Service Coverage Ratio (DSCR), and it focuses on the property's ability to generate income to cover its own debt, rather than your personal earnings in isolation.

In practice, the minimum DSCR most commercial lenders require is 1.30x. That means your shaded rental income must be at least 1.30 times the proposed annual loan repayment. So instead of asking how much you earn, the lender is asking whether this property generates enough income to comfortably carry its own debt.

I had a client recently, a GP who had been pre-approved for $1.4 million on a residential investment. He assumed that figure was his starting point for a commercial purchase too. It was not. His residential approval was based on his salary. His commercial capacity was based on the rental income of the specific property he wanted to buy. Once we ran the actual DSCR numbers, his borrowing capacity for that property came out closer to $900,000, because the face rent simply did not support more at the required 1.30x ratio. The good news is that once he understood this, we found a better-performing property and structured the deal correctly. That is exactly why using a calculator like this one before you make an offer matters.

Commercial LVRs in Australia generally range from 65% to 80%, which means you need a minimum deposit of between 20% and 35% of the purchase price. That said, the exact LVR available to you depends heavily on the property type, its location, the strength of the tenancy, and which lender you end up with. There is no single answer that applies to every deal.

Here is a practical guide based on what I see across our panel of 60-plus lenders. Owner-occupiers, where you are buying the premises to operate your own business from, typically access the highest LVRs, sometimes up to 80% to 85% with certain lenders. Investment purchases are generally capped at 70% to 75%. In terms of property types, medical centres, industrial warehouses and metro strata office tend to attract the strongest LVRs because lenders see consistent demand for these assets. On the other hand, hospitality venues, childcare centres and specialty assets often attract lower LVRs and require larger deposits. Location also plays a role, with regional and rural properties generally receiving more conservative treatment regardless of how well the income stacks up.

For example, I recently worked with a client buying a childcare centre in outer suburban Melbourne. Solid lease, good income, but because of the specialised nature of the asset, the lender capped the LVR at 65%. That meant a 35% deposit requirement, which was significantly more than my client had initially budgeted for. Knowing this before you make an offer is not optional. If you want to understand the LVR picture for the specific property you are considering, book a call with our team and we will run through the options before you commit to anything.

Yes, and for investment purchases it is typically the primary income source lenders assess. However, lenders do not use the face rent figure. They apply a shading factor of between 70% and 80% to the actual rent before it goes into the serviceability calculation. The calculator on this page uses 75%, which sits at the midpoint of what most lenders apply in practice.

The shading exists to account for vacancy periods, management costs and the variability in commercial leasing markets. What that means in practice is that a property generating $80,000 per year in rent contributes only $60,000 to your serviceability assessment, not the full $80,000. Importantly, the quality and structure of your tenancy directly affects how lenders treat this figure. A national retailer on a five-year lease with fixed annual rent reviews is the strongest possible serviceability evidence you can put in front of a lender. A month-to-month arrangement with a small business is assessed far more conservatively, and some lenders will not include it at all.

I had a client last year buying a small industrial unit in Brisbane. The tenant was a sole trader on a rolling monthly lease. Three of the lenders we approached either excluded the income entirely or applied a 60% shading factor, purely because of the tenancy quality. We found the right lender in the end, but the borrowing capacity came in lower than expected and the deal required a larger deposit. As a result, understanding your tenancy structure before you approach lenders is genuinely important. I'd encourage you to check your cash flow position using our calculator alongside your borrowing capacity, so you have the full picture.

In my experience, there are three reasons this happens, and working out which one applies to you is the first step to doing something about it.

The most common is income shading. If you entered the face rent expecting it to count in full, the 75% shading factor significantly reduces the assessable income before the DSCR calculation even begins. That gap between the headline rent and the figure lenders actually use is where a lot of capacity quietly disappears.

The second reason is existing commitments. Commercial serviceability assessments are quite sensitive to existing debt. Each dollar of monthly repayments on a home loan, business loan or vehicle lease reduces how much room is left for new commercial debt. I have seen clients with a relatively modest existing home loan of around $600,000 find that it meaningfully constrains their commercial borrowing capacity, because all debt service is stacked together in the DSCR calculation. If you also have business lending or equipment finance on top of that, the compounding effect can be substantial.

The third reason is the LVR constraint being the binding factor rather than serviceability. If the property type you are buying attracts a maximum 65% or 70% LVR, strong rental income does not help you push the loan beyond that ceiling. In that case, the only solution is a larger deposit. The calculator above is specifically designed to show you which of these two constraints is limiting your position. Once you know that, the path forward is much clearer. If you would like to talk through specific options for your situation, get in touch with our team.

It does, and in ways that are worth understanding well before you commit to a structure. The ownership entity determines which income sources go into the serviceability calculation. A company buying owner-occupied premises is assessed on the business's verified cash flow from tax returns and financial statements. An individual investor is assessed on a combination of rental income and personal income. An SMSF is assessed primarily on the fund's rental income and the members' ongoing contribution capacity.

For SMSF purchases, the borrowing operates under Limited Recourse Borrowing Arrangement (LRBA) rules, which the ATO governs. Not all lenders participate in SMSF commercial lending, and the LVR limits are typically 65% to 80% depending on the property type and lender. The ATO's guidance on limited recourse borrowing arrangements is worth reading if you are new to this area. For the full commercial property angle, our SMSF commercial property guide walks through the structure, the eligible property types and how the borrowing actually works inside a fund.

I had a client, a dentist in Perth, who wanted to buy her practice premises through a discretionary trust on good advice from her accountant. The tax planning rationale was sound. What neither of them had anticipated was that the trust had no trading history, which meant most lenders would only lend at 65% LVR rather than the 75% she could have accessed personally. We found a lender who was comfortable with the structure, but it took longer and the deposit requirement was higher. The lesson is always to confirm the structure with both your accountant and your broker before you sign anything, because changing the ownership structure after purchase triggers stamp duty and potentially capital gains tax.

There are four levers that genuinely work in practice. Which one is most relevant for you depends on whether your limiting constraint is serviceability or LVR, so run the calculator first to confirm which one you are dealing with. Then the path forward becomes much clearer.

If serviceability is the constraint, switching to interest-only is often the most effective immediate move. It reduces your annual debt service and improves your DSCR without changing any other aspect of the deal. On a $1 million loan at 6.75%, the annual repayment difference between interest-only and principal and interest is around $13,200. That shift alone can move a borderline application into approvable territory. You can toggle between loan types in the calculator above to see the impact for your specific numbers.

The second lever is reducing existing commitments before you apply. I recently worked with a client who had two small business vehicle leases running at a combined $1,800 per month. By paying them out ahead of the application using accessible savings, his DSCR-based commercial borrowing capacity increased by approximately $235,000. That is a meaningful shift for a relatively modest cash outlay, and it is exactly the kind of strategic move we work through together before you go to lenders.

Third, if you have flexibility on which property you buy, targeting stronger tenancies directly improves how lenders assess the income. A property with a national tenant on a five-year lease will typically attract better shading treatment and sometimes a more generous LVR policy than an equivalent property with a small business on a short lease. The income on paper might look similar, but the assessed borrowing capacity can differ significantly. Finally, if LVR is the binding constraint, using equity in an existing property as additional security is sometimes the most practical solution. Our commercial property interest rates page covers current rates across different loan structures and lender types, which gives useful context when you are modelling which structure works best for your position.