When to Buy Commercial Land & How Finance Works

Buying commercial land isn't financed the same way a house is. Lenders see vacant land as higher risk, which means you'll face stricter LVR limits, typically 60% to 70%, and interest rates that reflect that caution. If you're planning to build or develop, the loan structure needs to match your construction timeline, not just the purchase itself.

Most buyers in the south-eastern suburbs are either securing a site for a business they're expanding or purchasing land as a commercial property investment with a future tenant or sale in mind. Either way, the deposit requirement and loan structure will depend heavily on what you intend to do with the site and how quickly you plan to act.

How Much Deposit You'll Need for Commercial Land

You'll typically need a deposit of 30% to 40% of the purchase price when buying commercial land. Lenders offering commercial property finance treat vacant land as a higher-risk proposition than an income-generating property with tenants, so the commercial LVR is capped lower than it would be for an office building loan or retail property finance.

Consider a buyer purchasing a small industrial block in Braeside to eventually build a warehouse for their logistics business. If the land is valued at $800,000, the buyer would need at least $240,000 as a deposit to secure a 70% LVR, plus settlement costs including stamp duty, legal fees, and any valuation or advisory fees. The total upfront cost would likely exceed $300,000 before the loan is drawn.

If your business doesn't have that level of cash on hand, some lenders will accept collateral in the form of an existing commercial or residential property to support the deposit. That can reduce the immediate cash requirement, but it also puts another asset on the line if the development or sale doesn't proceed as planned.

Fixed vs Variable Interest Rate on Commercial Land Loans

Most commercial land loans are written on a variable interest rate, which gives you flexibility to pay down the loan faster without penalty or switch to a construction loan when you're ready to build. A fixed interest rate is less common for land acquisition because buyers typically don't hold vacant land for long periods without taking further action.

If you're planning to develop the site within 12 to 24 months, a variable rate with a redraw facility can be useful. It allows you to access any additional repayments you've made while waiting for permits or approvals, which can help fund early-stage construction costs or professional fees.

Fixed rates make more sense if you're buying the land as a hold for a future project and you want certainty over repayments during that holding period. However, if you decide to sell or refinance before the fixed term ends, you may face break costs, which can be substantial depending on rate movements.

When a Bridging Loan Makes Sense for Land Purchase

Commercial bridging finance can help if you're buying land before selling an existing property or if you need short-term funding while a longer-term facility is being arranged. These loans typically carry higher interest rates and are structured over six to 12 months, so they're not suitable for long holding periods.

In a scenario like this: a business owner in Moorabbin finds a strata title commercial lot that suits their needs, but their current premises won't settle for another eight months. They use bridging finance to secure the land, then refinance to a standard commercial property loan once the sale completes. The interest cost is higher during the bridging period, but the buyer avoids losing the site to another purchaser.

Bridging finance also appears in projects where the buyer intends to subdivide or rezone the land quickly and sell a portion to reduce debt. The exit strategy is built into the loan structure from the outset, and the lender will want to see evidence that the sale or refinance can realistically occur within the loan term.

Loan Structure Options for Commercial Land Development

If you're buying land with the intention to build, the loan structure should account for both the purchase and the construction phase. A commercial construction loan with progressive drawdown allows you to fund the build in stages as work is completed, rather than drawing the full loan amount upfront.

Some lenders will approve a single facility covering the land purchase and construction, while others require a separate land acquisition loan that's then rolled into a construction facility once building commences. The latter approach can mean higher upfront costs and two rounds of legal and valuation fees.

A revolving line of credit can also be useful if your business needs ongoing access to funds for equipment, fitout, or working capital during the construction phase. This structure is common for buyers expanding their business who need flexibility as the project progresses, particularly in sectors like manufacturing or logistics where warehouse financing or industrial property loan needs overlap with operational costs.

What Lenders Look for in a Commercial Land Application

Lenders assess your serviceability based on your business financials, not just personal income. If the land is being purchased through a company or trust, they'll want to see at least two years of business financials, tax returns, and a clear explanation of how the loan will be serviced during the holding period when the land isn't generating income.

If you're buying the land as an individual for business use, lenders may allow you to use rental income from other properties or salary from the business to support the application, but they'll still want to see a credible plan for how the land will be used or sold.

The commercial property valuation is critical. Lenders will appoint their own valuer, and if the valuation comes in below the purchase price, the loan amount will be based on the lower figure. That means you'll need to find additional funds to cover the gap, or renegotiate the contract.

When Commercial Refinance Can Lower Your Cost

Once the land is developed or tenanted, you may be able to refinance to a lower interest rate or higher LVR based on the improved value of the property. A completed warehouse or office building will typically support a commercial LVR of 70% to 80%, compared to the 60% to 70% available on vacant land.

Commercial refinance can also help if you initially used bridging finance or a short-term facility and now want to lock in longer loan terms with more flexible repayment options. Timing matters, as refinancing too early can trigger break costs on a fixed rate loan, but waiting too long can mean you're paying a higher rate than necessary.

If you secured the land with personal funds or a residential property as collateral, refinancing the completed project as a standalone commercial property loan can free up that security and reduce your overall exposure.

Call one of our team or book an appointment at a time that works for you. We work with buyers across Melbourne's south-eastern suburbs and have access to commercial loan options from banks and lenders across Australia, including those who specialise in land acquisition and commercial development finance. Whether you're buying an industrial property in Dandenong, securing a site in Cheltenham, or planning a staged build in Braeside, we'll help you structure the finance to match your timeline and business goals.

Frequently Asked Questions