On a commercial loan is it possible the same margin or line fee above the BBSW for the first 3 years be negotiated to roll into the following 3 years. I’m concerned that if we’ve been offered a margin of 3% for the 3 years, the bank can then bump it up to 5% after the first 3 years. Can the same margin be included in the agreement for 3x3 year loan agreement?

Hi Alistair

It sounds like you have what is commonly termed a "Market Rate" facility. A known benchmark rate, such as BBSW, plus a margin or line fee for the lender. Generally the Margin is fixed for the agreed term, with review or renewal at the end of the term.

Unlikely a lender would agree to a 3 x 3 facility, as they would want to review and adjust the Margin if they were unable to sustain a desired rate of return. The lender will want to review the facilities performance both in terms of you as the borrower, are you making good on repayments, and the loan as an income source, is it still profitable to offer the loan at a given rate.

As I tell many of my Commerical clients. While you may be concerned of uncertainty about what the lender may offer at the time of renewal. You should take this as an opportunity to perform the same kind of review. Is my lender performing? Is my lender offering me the best?

Commerical lending is becoming as competitive as home loans. If you’ve focused on growing your business's performance and made your payments on time. Then you will find that many lenders are keen to acquire your lending and banking needs. You should be upfront with your lender and let then know “YOU” are performing a review.

See what they have to offer and compare to other lenders in the market. It is a different product market to residential and a few more considerations. But a good Commerical Broker can get a range of offers and breakdown the complexity so it’s apples for apples.

Cheers

Casey

Hi Alistair,

Just like a residential variable home loan, commercial lenders reserve the right to review and amend their loan agreements based on a combination of market conditions and you as a customer.

The first factor you can't do much about and the good news is depending on the overall risk level of your security there's not a huge difference with banks at the moment as it's a competitive market.

However, the second factor needs some consideration. The majors usually have their commercial facilities as rolling three year terms, which can sometimes be a big issue. For example, let's say you're self-employed and your revenue has dipped from what it was when you originally took out the loan. When it comes time for review, the bank may change the goal posts, as you're now a higher risk for them.

There are lenders out there who won't do this and will instead structure your loan term just like a resi lender would i.e. once it's been approved they'll leave you alone.

For some, having this comfort can be a bigger benefit then simply a lower rate.

Hope that helps.

Tim Russell
Call: ✆ (0400) 530-868
Email: ✉ tim@multipartfinance.com.au
Visit: ☛ https://multipartfinance.com.au