Commercial lending explained: what sets the size of a loan

Next update. The Reserve Bank's next decision on the cash rate is due on 3 November 2026. We will update the rates and figures in this article after it.

A business that borrows is choosing a product before it chooses a lender, and the products differ more than their names suggest. An overdraft, an invoice facility and a loan against a warehouse can each put $500,000 into a business's account. Each is secured by something different, repaid from something different and ended in a different way, and the differences matter most when the business is under pressure.

This part maps business and commercial property lending in Australia, what lenders publish about how much they will lend, and the tests that decide the size of a loan, with models of a $1.5 million commercial property and a residential development in NSW. A rule, a lender's published policy and our own illustration are kept apart and labelled throughout.

APRA's standard risk weight for development lending that does not meet its conditions for 100%, against 70% for a standard loan on a commercial property repaid from its rent at a loan to value ratio (LVR) of 60% or less

150%

APRA, APS 112

Total debt limit in the Banking Code's definition of a small business, which also requires turnover under $10 million and fewer than 100 full-time equivalent employees

$5 million

Banking Code of Practice

Macquarie's published maximum lending by industry, as a multiple of earnings before interest, tax, depreciation and amortisation, May 2026

2.0 to 4.5 times

Macquarie

Four questions that sort every business loan

Every business lending product answers four questions: what the money is for, what secures it, what repays it, and how the facility ends. The answers explain most of a product's features, and most of the trouble when a product is used for the wrong job.

What the money is for. Lenders build products around how long the thing financed lasts: a building decades, a truck several years, stock a few months, an unpaid invoice a few weeks. The term, the repayments and the security follow.

What secures it. Security is what the lender can take and sell if the loan is not repaid: land, through a registered mortgage; the asset being financed; the business's invoices; or a company's other assets, through a general security agreement registered on the Personal Property Securities Register against all of its present and after-acquired property.⁷ A loan called unsecured often has a director's guarantee behind it instead, which puts the director's own assets, a home included, behind the loan; Part 6 explains how each works and how they rank.

What repays it. It may be earnings, rent, a sale or refinancing, or a particular customer's payment, and lenders look at it first: APRA's credit risk standard requires a bank to assess credit risk primarily on the borrower's capacity to repay, without undue reliance on collateral (APS 220, paragraph 42), as Part 5 sets out.⁸ Security is the fallback, not the plan.

How it ends. A term loan runs to a date. An overdraft or a line of credit has a limit, drawn and repaid as needed, that the lender can review and sometimes call at short notice. How a facility ends matters as much as what it costs while it runs.

Threefold Capital interpretation

The main kinds of business lending, and how each works

Product	What it is for	Usually secured by	How it is repaid, and how it ends
Business term loan	Long-lived assets, expansion, refinancing	Property, business assets and guarantees; smaller loans can be unsecured	Instalments over a fixed term, sometimes interest only for a period
Overdraft and line of credit	Swings in working capital	Property or business assets; smaller limits unsecured, often with guarantees	Drawn and repaid as cash moves, with a fee on the limit; reviewed, and an overdraft can be repayable on demand
Unsecured business loan	Smaller, shorter needs	No specific asset at the start; often a personal guarantee	Fixed repayments over one to seven years on the terms published
Invoice finance	Cash tied up in invoices to business customers	The invoices, which some lenders buy; usually with recourse, so an unpaid invoice comes back to the business	From customers' payments, as they arrive
Trade finance	Imports, exports and domestic trade	The goods and the business's other security	In full at maturity, matched to the trade
Bank guarantee	A promise to a landlord, supplier or customer in place of a cash bond	A term deposit, property or other security	Nothing unless called; then the business owes the bank
Chattel mortgage	Vehicles and equipment	The asset, which the business owns from the start	Instalments, sometimes with a larger final payment
Hire purchase	Vehicles and equipment	The asset, which the lender owns until the last payment	Instalments; ownership passes with the final payment
Finance lease	Vehicles and equipment	The asset, which the lender owns throughout	Rent; at the end the asset is returned, bought or leased again, or a residual value is paid
Commercial property loan	An office, warehouse or shop, to occupy or to lease	A first mortgage, often with a general security agreement and guarantees	From the business's earnings or the rent; an investment loan's term can end with the lease
Lease doc and low doc loans	Property loans assessed on less documentation	As for a property loan	As for a property loan, assessed on the lease or on business activity statements
Acquisition finance	Buying a business	The business's assets, the shares in the company bought, and guarantees, lent largely against its earnings	From the combined business's earnings
Development finance	Building homes or commercial property	A first mortgage over the land, a general security agreement and guarantees; presales support it	From the sale or refinancing of the finished project; interest can be added to the loan
Private credit and mezzanine	Loans banks will not make, or will not make as large	Senior private loans take first security; mezzanine ranks behind the senior lender	As the loan agreement sets, priced for the risk of the position

A general description. Each lender sets its own terms, and a product of the same name can differ from one lender to the next.

Term loans, overdrafts and lines of credit

A business term loan lends a fixed amount for a fixed term, repaid by instalments of principal and interest, or of interest only for a period, and its term depends on its security. CommBank's BetterBusiness Loan runs for up to seven years unsecured, with limits up to $250,000, and up to 30 years secured by residential, rural or commercial property, for which it asks a deposit of at least 30% and cash reserves (information current at 9 October 2026).⁹ ANZ offers up to 30 years on loans under $5 million secured by suitable residential or commercial property.¹⁰ Interest only keeps repayments down while the balance stays put; when it ends, the balance is repaid over the years left and the repayments jump.

An overdraft lets a business account run below zero, to a limit, with "no regular fixed repayments", in CommBank's words.¹¹ The business pays interest on what it uses and a fee for the limit itself: CommBank charges a line fee of 1.70% a year "for making your Business Overdraft available 24/7", and Westpac a monthly line fee of 1.20% a year of the total limit.^11,12 Security changes the price. CommBank advertises variable overdraft rates from 15.05% a year unsecured and from 9.00% secured.¹¹

Flexibility costs certainty. Macquarie's broker guide lists the term of its business overdraft as "On demand".¹³ The Banking Code of Practice generally requires the banks that have adopted it, called Code banks here, to give a small business at least 30 days' notice of a missed payment before demanding full repayment (paragraph 82), but for an overdraft or on-demand facility the bank "may not be required to give you any notice when we require repayment" (paragraph 85).⁵ A line of credit is similar, usually for larger sums: Judo Bank's has a "12-month term with annual review" and no fixed repayment schedule.¹⁴ A facility that expires each year, or that the lender can call on demand, is in practice a one-year loan, however long the business means to use it. An annual review of a term loan is different: the lender checks the accounts, the covenants and the security and may reprice where the agreement allows, but it cannot call the loan unless the agreement makes the review an event it can act on.

Unsecured business loans

Smaller business loans are where non-bank lenders have grown fastest: the Reserve Bank has noted "strong growth in the non-bank share of business lending since 2022, especially for smaller loans to SMEs".¹⁵ The banks' published unsecured loans stop at $200,000 to $250,000, over up to five or seven years, while two online lenders, Prospa and Moula, publish $500,000 over up to five years.^{9,16,17,18,19,20}

Unsecured describes the lender's position at the start, not the owner's exposure. Westpac says that for corporate borrowers "director guarantees may be required", and ANZ that for unsecured business lending a personal guarantee "may still be required from all company directors".^16,18 Prospa takes "a personal guarantee from directors, shareholders or persons actively engaged in the management of the business", and above $150,000 it takes security, described on one of its pages as a charge over the business registered on the Personal Property Securities Register and on another as property or asset ownership.^21,19 Moula requires a personal guarantee when a company applies.²⁰ A director who signs one has, in effect, offered personal security for the loan.

Fees weigh most on small, short loans. Prospa charges an origination fee of 2% to 3.5%, and Westpac a $250 establishment fee on its unsecured loan.^19,16 On a two-year loan repaid in equal monthly instalments, a 3% upfront fee adds about 3 percentage points a year to the effective cost, because the average balance is only about half the loan (our calculation).

Invoice finance, trade finance and bank guarantees

Invoice finance lends against what business customers owe: a share of each invoice when it is issued, and the rest, less fees, when the customer pays. Published advance rates run from 80% at CommBank to 85% at Westpac and NAB, and 95% of approved invoices at ScotPac, a specialist lender.^22,23,24,25 The arrangements differ. NAB buys the invoices, though the business keeps collecting them; Westpac keeps its arrangement confidential; ScotPac will not fund invoices to private individuals or invoices more than 90 days old.^24,23,25 Most facilities are with recourse: if a customer does not pay within the agreed period, the business repays or replaces the advance, so it still carries the bad debt unless it buys protection against it, and lenders commonly cap the share of the facility resting on any one customer. The facility grows with sales, which suits a business whose customers pay on terms and does nothing for one paid in cash.

Trade finance carries goods from purchase to sale. Westpac describes its trade finance as "fixed rate, fixed term finance for short-term export, import and domestic trade transactions", for a term "not to exceed 180 days", with "repayment in full at maturity".²⁶ It is repaid from the trade it pays for, which is why its term is measured in days.

A bank guarantee is a promise rather than a loan, but it uses credit all the same. NAB describes it as "an alternative to providing a cash deposit or bond directly to a supplier, vendor or landlord", secured by a term deposit, property or other security. When it is called, "the bank is obligated to pay the beneficiary without checking with you" and "irrespective of any performance by you", and the business then owes the bank.²⁷ A guarantee that is never called still ties up security and part of what the business can borrow.

Reported data

Overdrafts, lines of credit, unsecured loans and invoice finance: what lenders publish

Product and lender	Published limit or term	Conditions and security
Overdraft: CommBank	Unsecured $2,000 to $250,000; line fee 1.70% a year	No regular fixed repayments; secured limits from $2,000; information current at 9 October 2026
Overdraft: Westpac	Unsecured up to $250,000; line fee 1.20% a year of the total limit	No regular repayments; an asset and guarantee may be required
Overdraft: Macquarie	Term: "On demand"	Broker guide dated May 2026
Line of credit: Judo Bank	From $250,000; 12-month term with annual review	No fixed repayment schedule
Unsecured loan: CommBank	Up to $250,000; up to 7 years	BetterBusiness Loan; information current at 9 October 2026
Unsecured loan: Westpac	$5,000 to $250,000; 1 to 5 years	Director guarantees may be required for companies; $250 establishment fee
Unsecured loan: NAB	$5,000 to $250,000; up to 5 years	QuickBiz: fixed rate, principal and interest only; security not required
Unsecured loan: ANZ	$10,000 to $200,000; up to 7 years variable or 3 years fixed	A personal guarantee may still be required from all company directors; a general security agreement may be needed from $200,000 to $500,000
Unsecured loan: Prospa	$5,000 to $500,000; up to 5 years	Personal guarantee; security above $150,000, described as property or asset ownership on one page and a registered charge over the business on another; origination fee 2% to 3.5%
Unsecured loan: Moula	$10,000 to $500,000; up to 5 years	Personal guarantee for companies; no upfront asset security up to $150,000
Invoice finance: CommBank	Up to 80% of unpaid invoices	Invoices to businesses; the invoices are the security; information current at 5 November 2025
Invoice finance: Westpac	Up to 85% of invoice value	Turnover of at least $4 million; limits from $1 million; confidential
Invoice finance: NAB	Up to 85% of unpaid invoices, sold to NAB	Turnover over $1 million; the business collects its own invoices
Invoice finance: ScotPac	Up to 95% of approved invoices, less fees	Business customers only; not invoices older than 90 days

Each figure is that lender's published maximum or term for that product, under the conditions on its page. It is not a market norm, a typical outcome or an offer. A date shown on a page is given at the end of its conditions; every page was read on 12 October 2026.

Equipment finance: who owns the asset

Equipment finance is secured by the thing it pays for, so lenders will often finance all of it: under its finance lease NAB says it must "pay for 100% of the vehicle's cost" and cannot take a deposit, and ANZ says a hire purchase customer "may not have to pay a deposit".^28,29 The three common forms differ in who owns the asset while it is paid for, which affects how GST and tax are claimed and decides what happens at the end.

Chattel mortgage. The business buys and owns the asset from the start, and the lender takes security over it. Westpac's business equipment loan is "also known as equipment finance or chattel mortgage", is "secured by the equipment" and runs for one to seven years.³⁰ CommBank says the business may be able to claim GST input tax credits upfront, and deductions for depreciation, interest and running costs.³¹

Hire purchase. The lender buys the asset and hires it to the business, and ownership passes with the last payment. At ANZ, "once the final payment is made at the end of the hire purchase, the asset is all yours to keep", over terms of one to seven years.²⁹

Finance lease. The lender owns the asset throughout and rents it to the business. At the end, NAB's customers return the goods or offer to buy or lease them again, and Westpac's pay the residual value.^28,30 Any GST credit is claimed on each rental payment rather than upfront, and the rent may be deductible.^31,28

Which suits depends on the business's tax position and on whether it wants the asset at the end. This article does not describe the tax treatment of any of the three: CommBank says it depends on the business's circumstances,³¹ it differs with the business's GST accounting basis, its size and the asset, and it is a question for an accountant. For the lender, the asset is the main security in every form.

Commercial property loans

A commercial property loan has the shape of a home loan, a large amount against a registered first mortgage, but usually a shorter life: the 30 year terms above are the longest published, and a bank facility commonly runs for three to five years, amortising over a longer schedule, and ends in a review or a refinance (Part 3 shows what that can cost). Larger loans are usually priced as a margin over a bank bill rate plus a line fee, and the agreement commonly tests the LVR and the interest cover each year on the lender's own valuation, so a fall in value can put a loan in breach while every payment has been made. A property the business occupies is repaid from its earnings and an investment property from its rent, so for an investment the lender looks hard at the lease: the tenant, the term left to run and whether the tenant is related to the borrower.

Lease doc loans are built for investment property and are assessed on the lease rather than on the borrower's full financial statements. Bendigo Bank's lease doc brochure, coded 03/26, assesses servicing "using only the property's rental income" and requires a lease to a third party, not a related entity.² CommBank's Lease Doc loan lends up to 65% of value and $5 million, for up to five years or to the lease expiry if sooner, to a non-trading company or trust set up just to hold the property, with a first-ranking registered mortgage, a general security instrument over the borrower and a director guarantee.¹ A loan whose term ends with the lease must be refinanced just when the tenant may be leaving.

Low doc loans, sometimes called alt doc, accept less than full financial statements and tax returns. Westpac says business activity statements "can be used for lending up to $1.5m", and that a business can borrow up to $5 million "with fewer financials compared to a full application pathway".³² Pepper Money says its maximum loan to value ratio "differs across loan options, documentation types and property types".³³ In our view, less documentation should be expected to mean a smaller loan or a higher price, because the lender knows less.

Full documentation loans carry the highest published maximums, and the range is wide, as the table below shows. La Trobe Financial, a non-bank lender, publishes 75% for loans up to $3 million, falling to 65% at $50 million.³⁴ NAB's simplified small business pathway lends up to $2 million at up to 80% of the value of owner-occupied commercial property, but not against investment or development property, on a broker document correct at 2 April 2026.³ Westpac's Business Loan page shows 100%, limited to loans of up to $3 million for buying owner-occupied non-specialised commercial property or expanding, by businesses profitable for at least two years. It warns of "the increased risks associated with high loan to value ratio borrowing" and does not say what security the ratio is measured against, so the figure cannot be read as 100% of the property alone.³²

Acquisition and development finance

Lending to buy a business rests largely on the earnings of the business being bought, because a services business may own little that a lender can sell. Judo Bank advertises loans of "up to 100% of acquisition costs (up to $15 million)", over up to 15 years with up to five years interest only; its page says nothing about security, equity or guarantees.³⁵ Part 7 works through the purchase of a $2 million business with senior debt, vendor finance and equity.

Development finance is lent in stages as a project is built, against progress claims, with the interest added to the loan, and is repaid when the finished homes or buildings are sold or refinanced. La Trobe Financial's term sheet says interest "will be capitalised during the construction period within maximum LVRs".³⁶ Its development loan lends up to 70% of value, "not to exceed 80% of total development cost", for up to three years, interest only; the page does not say whether the value is the site's as it stands or the project's as if complete, which differ by the whole development margin.³⁷ Two further products bracket the build: loans to buy a development site, and loans against finished homes that have not yet sold, known as residual stock, each at up to 75% of value in its August 2026 broker guide.³⁸ The banks say less. CommBank says it finances development, including land subdivision, without published criteria, and Macquarie's broker guide says that "loans to developers are generally not permitted under these Guidelines".^39,13

Presales are contracts to buy homes signed before they are built. They show the lender that demand exists and, at completion, provide the money that repays it, and APRA's capital standard shows what they are worth to a bank: a bank on the standardised approach may weight residential development at 100% rather than 150% only if, among other conditions, total debt is less than 75% of qualifying development costs and, for an exposure of more than $5 million to a single development, qualifying presales cover at least 100% of the debt, under a bank policy that defines both terms (APS 112, Attachment A, paragraphs 29 and 30).⁴ What makes a presale qualify is each lender's policy; the table of measures gives the usual tests. La Trobe Financial lists "flexible pre-sales requirements" among its features.³⁶

Reported data

Commercial property, development and acquisition: the maximum loans lenders publish

Product and lender	Published maximum	Conditions
Lease doc, investment property: CommBank	65% LVR; up to $5 million	Non-trading special purpose borrower; arm's length lease; term up to five years or lease expiry
Lease doc, investment property: Westpac	70% LVR up to $3 million; 65% above	Non-trading company or trustee; term aligned to lease expiry; undated broker page
Lease doc, investment property: Bendigo Bank	65% LVR; $200,000 to $3 million	Lease to a third party; servicing on rental income only; brochure coded 03/26
Investment property: Macquarie	Up to 70% LVR	Office, industrial, retail, mixed use; minimum interest cover 1.1 to 1.3 times; broker guide dated May 2026
Full doc, owner-occupied or investment: La Trobe Financial	75% LVR up to $3 million; 70% up to $25 million; 65% up to $50 million	Terms up to 30 years
Owner-occupied property: NAB	80% LVR; up to $2 million	Simplified small business pathway; not for investment or development security; broker document correct at 2 April 2026
Commercial property: Pepper Money	Up to 80% LVR; up to $5 million	LVR differs by loan option, documentation and property type; page states its information is correct at 1 July 2024
Owner-occupied property or expansion: Westpac	100% LVR; up to $3 million	Operating and profitable for at least two years; non-specialised property; an asset and guarantee may be required; the page does not say what security the ratio is measured against
Construction: La Trobe Financial	70% LVR, not over 80% of total development cost; 65% up to $50 million	Up to 3 years, interest only; the page does not say whether the value is as is or as if complete
Development site purchase: La Trobe Financial	75% LVR	1 to 3 years; broker guide dated August 2026
Residual stock: La Trobe Financial	75% LVR	1 to 5 years; broker guide dated August 2026
Business acquisition: Judo Bank	Up to 100% of acquisition costs; up to $15 million	Terms up to 15 years; interest only up to 5 years

The loan to value ratio (LVR) is the loan as a share of the lender's valuation. Each figure is that lender's published maximum under its stated conditions, not a market norm or an offer. A date shown on a page is given at the end of its conditions; every page was read on 12 October 2026.

Private credit and mezzanine

Private credit is lending by funds rather than banks, funded by investors such as superannuation funds, insurers and family offices, and in Australia, the Reserve Bank notes, "particularly concentrated in the real estate sector".¹⁵ APRA's credit and capital standards apply to authorised deposit-taking institutions (ADIs: banks, building societies and credit unions), which these funds are not (APS 220 and APS 112, paragraph 2 of each).^8,4 That leaves them free to lend on terms a bank's capital rules would make expensive, such as a larger share of a development's cost, and in our view a borrower should expect to pay for that freedom.

Mezzanine finance sits between the senior loan and the owners' equity: repaid after the senior lender and before the owners, with any security ranking behind the senior lender's, and paid more for the extra risk. Part 6 explains how the order of payment is fixed, and Part 7 what a mezzanine layer does to the owners' return.

Private credit is small beside the banks: in its October 2026 Financial Stability Review the Reserve Bank put it at around 10% of total business debt and less than 2% of the financial system's assets on the largest estimates, and Part 3 sets out why the estimates differ.⁴⁰ The same review noted a statement by ASIC in June 2026 calling on private credit funds to ensure asset valuations were "timely and robust".⁴⁰

Who counts as a small business

Most business lending sits outside the National Credit Code, the consumer credit law that governs home loans. The Code covers credit to individuals and strata corporations for personal, domestic or household purposes, or to buy, renovate or improve residential property as an investment (National Consumer Credit Protection Act 2009, Schedule 1, section 5(1)).⁴¹ A company's loan to buy a warehouse is not covered, nor is a sole trader's or a partner's loan taken wholly or predominantly for the business: a lender can rely on the borrower's written declaration of that purpose, made before the contract, unless it knew or had reason to believe otherwise (section 13).⁴¹

The Banking Code of Practice, the industry's own code, fills part of that gap, and the Australian Banking Association lists ANZ, CommBank, NAB and Westpac among the Code banks.⁴² Many of its protections for business borrowers apply only to a "Small Business", and the 2025 Code, in force since 28 February 2025, sets three tests that the business, or its business group, must all meet:^5,6

• annual turnover of less than $10 million in the previous financial year;
• fewer than 100 full-time equivalent employees; and
• less than $5 million of total debt to all credit providers, counting undrawn limits and the loan being applied for, but not debt covered by the National Credit Code and, without double counting, not debt owed between members of the group.

Whatever its size, a business is not a small business under the Code if it is listed on an Australian or overseas stock exchange, is a partnership or joint venture with more than 20 partners or venturers, is a government entity or an APRA-regulated entity, or is a member of a business group that includes any of these; certain financial services licensees and corporate collective investment vehicles are excluded too.⁵ The business group is, broadly, the customer together with the entities it controls, those that control it and their other controlled entities, and control includes being an entity's director or trustee or holding 25% or more of it.⁵

ASIC said that raising the debt test from $3 million to $5 million made about 10,000 more businesses eligible.⁶ For a business inside the definition, the Code sets standards for the whole life of a loan, from lending with "the care and skill of a diligent and prudent banker" (paragraph 77) to notice before enforcement and a copy of any commercial property valuation the business paid for, unless enforcement has begun (paragraph 97).⁵ Part 5 sets them out paragraph by paragraph, and Part 6 covers default and notice.

The debt test is the easiest to miss, because it counts whole limits, drawn or not, and the loan being applied for. In our development example below the loan limit alone is $4,550,000, so a group with $450,000 or more of other debt would fall outside the definition before a dollar was drawn (our calculation). Covenants matter too. In a standard form small business loan the Code lets financial covenants be a default trigger for property development and listed kinds of specialised lending, such as construction finance and invoice discounting (paragraph 91); in our reading of paragraphs 87 and 91 together, not elsewhere in such a loan.⁵ Negotiated and larger facilities are outside this, and covenant defaults are usual there.

The measures that set the size of a loan

A lender asks how it could lose money, and each measure answers one way. A loan has to pass every test that fits it, so the test that gives the smallest loan decides. APRA's credit risk standard puts the capacity to repay first and requires "appropriate limits on LVR" (APS 220, paragraph 52), but sets no numbers, as Part 5 explains; the numbers are each lender's policy.⁸

The valuation in a loan to value ratio is not the price. APS 220 requires a bank to value property on the basis of a sale within a marketing period of up to 12 months (up to 24 months for specialised property) in unchanged market conditions, with conservative estimates of income not yet contracted (Attachment A, paragraphs 15 and 16).⁸ A valuer working to that standard can reasonably come in below what a keen buyer paid.

Loan to cost settings differ widely: 80% of total development cost at La Trobe Financial, up to 100% of acquisition costs at Judo Bank.^37,35

Cover ratios come with conditions. Macquarie's broker guide sets minimum interest cover for property investors at 1.1 times for a property worth up to $7.5 million with a loan of up to 60% of its value, and 1.3 times for a higher LVR or, at up to 70%, a more valuable property, with a note that reads "Includes buffer, currently 1%".¹³ A cover test is also only as generous as its definition of cash: lenders commonly measure debt service cover on earnings before interest, tax, depreciation and amortisation (EBITDA) less tax paid, often less the capital spending needed to keep the business running, and at a rate above the loan's, so a business with $1 million of EBITDA, $250,000 of tax and $150,000 of replacement spending has $600,000 to service debt, not $1 million (our arithmetic on assumed figures). Part 5's stress model tests cover on plain EBITDA, the generous end of these definitions, as rates and sales move.

Threefold Capital interpretation

The measures lenders use to size a loan

Measure	How it is worked out	What it guards against	Where it usually decides the loan
Loan to value ratio (LVR)	The loan divided by the lender's valuation of the security	A sale of the security not repaying the loan	Property and asset-backed loans, especially when interest rates are low
Loan to cost (LTC)	The loan divided by the total cost of the purchase or project, including duty and fees; in a development the cost includes the interest added to the loan during the build	The owners having too little of their own money at risk	Development, construction and acquisitions
Interest cover (ICR)	Net rent or earnings before interest and tax, divided by interest, usually at a rate above the loan's	Income falling short of the interest	Investment property, especially when interest rates are high
Debt service cover (DSCR)	Cash available for the loan, usually EBITDA less tax paid and often less capital spending and distributions, divided by a year of interest and scheduled principal; the loan agreement's definition governs	Cash falling short of every loan payment	Business loans repaid by instalments
Debt to EBITDA	Total debt divided by a year's EBITDA: the years of earnings the debt represents	More debt than earnings can repay in a reasonable time	Lending against cash flow, including acquisitions
Lease term remaining (weighted average lease expiry, WALE)	The years of rent still contracted, weighted by rent across the tenants	Income ending before the loan does	Investment property; lease doc loans are often capped at the lease expiry
Gearing	Total liabilities divided by total tangible assets, or debt divided by equity	Owners with too little of the business at risk	Business term loans and overdrafts, as a covenant
Presales	Qualifying sale contracts compared with the debt; lenders commonly count only unconditional contracts at arm's length with a cash deposit held in trust, limit the share of any one buyer, of related parties and of overseas buyers, and want the sunset date after the expected completion	Finished homes that do not sell, or sell for less	Residential development

Macquarie's guide also publishes its caps on lending against earnings, industry by industry. A footnote says "this is a guide only" and that EBITDA "can be adjusted for items such as principal salaries, exceptional items and other factors".¹³

Reported data

Macquarie's maximum lending by industry, as a multiple of EBITDA

Times earnings before interest, tax, depreciation and amortisation, as published in Macquarie's commercial lending guide for brokers, dated May 2026

1. Strata managers, 5,000 lots or more, outside WA4.5×
2. Insurance broking, recurring revenue over $1 million4.0×
3. Accounting and financial planning3.75×
4. Healthcare: general practice, diagnostics, day hospitals3.5×
5. Vet and dental3.0×
6. Software, including subscription software (SaaS)3.0×
7. IT services, revenue of $30 million or more3.0×
8. Legal2.5×
9. IT services, revenue under $30 million2.0×
10. Built environment2.0×

One more measure belongs to the bank, not the borrower: the capital it must hold against the loan, set by the loan's risk weight. APRA's standard sets the weights for banks on its standardised approach, and for commercial property the table that applies depends on what repays the loan, the property's own rent or the earnings of the business that occupies it (APS 112, Attachment A, paragraphs 23, 24, 29 and 30).⁴

Reported data

APRA's standard risk weights for business and commercial property lending

Risk weight, per cent of the loan, under APRA's standardised approach to credit risk, in force from 1 July 2025

Lending to small and medium businesses, unrated

1. SME retail: total lending under $1.5 million75%
2. SME corporate: revenue under $75 million85%

Commercial property the business occupies and repays, unrated borrower

1. Standard loan, LVR 60% or less60%

Commercial property repaid from its own income

1. Standard loan, LVR 60% or less70%
2. Standard loan, LVR 60.01% to 80%90%
3. Standard loan, LVR over 80%110%
4. Non-standard loan150%

Land acquisition, development and construction

1. Residential, meeting APRA's conditions100%
2. All other development lending150%

Worked example: a $1.5 million commercial property

Our first illustration is a hypothetical company formed to buy a $1.5 million industrial unit let to an unrelated tenant at a net rent of $97,500 a year, a yield of 6.50%. Its owners have $700,000. We assume a lender that lends up to 65% of the lower of the price and its valuation, wants the net rent to cover the interest at least 1.5 times, and charges 6.75% a year: our settings, not any lender's policy, and not a quote. Duty and purchase costs are an assumed 5.5% of the price, $83,000: an allowance for transfer duty and the legal, due diligence, valuation and lender's fees, not a calculation of NSW duty on this purchase. Tax and repayments of principal are left out, and cover is tested at the loan's own rate, interest only; lenders usually test at a higher rate and often on principal and interest, so the model's loan is a ceiling and its equity a floor.

Illustrative model

Model: how much a lender will lend against a $1.5 million commercial property

Five scenarios change one thing at a time: the lender's maximum loan to value, a valuation below the price, and a lower interest rate. Choose one, or move the controls to set your own.

Lender lends 50%Lender lends 65%Lender lends 80%Valued 10% below the priceInterest rate at 5.75%

Without JavaScript the model shows one scenario: Lender lends 65%.

The property

Purchase price

$1,500,000

−+

Lender's valuation, share of the price

100%

−+

Duty and purchase costs, share of the price

5.50%

−+

Net rent a year

$97,500

−+

The lender's limits

Maximum loan, share of value

65%

−+

Minimum interest cover

1.50×

−+

Interest rate

6.75%

−+

The buyer

Cash the buyer has

$700,000

−+

Loan $963,000own money needed $620,000

The buyer's own money needed

$620,000

Loan

$963,000

Short of the cash the buyer has

$0

Return on the buyer's money, before tax and repayments

5.2%

The income test sets the loan at $963,000: net rent of $97,500 covers its interest 1.50×. The value test alone, 65% of the price, would allow $975,000.

With purchase costs of $83,000, the buyer needs $620,000 of its own money, which the $700,000 it has covers.

The property yields 6.50% and the loan costs 6.75%, so borrowing lowers the return on the buyer's own money, to 5.2% before tax and repayments.

Where the money comes from

The income test decides. At 6.75%, a 65% value limit would allow $975,000, but the net rent covers the interest 1.5 times only on a loan of up to $963,000, so that is the loan: 64% of the price, not 65%. The buyer needs $620,000 of its own money, within the $700,000 it has. The two tests give the same loan at a rate just under 6.7% (our calculation); below it the value test decides, above it the income test. A lender that tests cover at a rate above the loan's, as Macquarie's guide says it does with a buffer of currently 1 percentage point,¹³ would lend less again: at 7.75% the same test allows $839,000, the 7.75% row of the grid below. A lender that requires principal repayments tests cover on interest and principal together, which lowers the loan further; Part 5's model shows how far the two measures of cover can differ.

A higher value limit does not help. A lender willing to lend 80% of value would allow $1,200,000 on value, and the loan would still be $963,000, because the rent has not changed. Only a lower rate, a lower cover requirement or more rent would move it. A lower value limit does bite: at 50% the loan falls to $750,000, and the buyer is $133,000 short of its cash.

A valuation below the price. If the valuer puts the property 10% below the price, at $1,350,000, the value test drops below the income test and becomes the limit. The loan falls to $878,000, and the buyer's own money rises from $620,000 to $705,000, $5,000 more than it has. The price has not changed; the lender lends against its valuation, and the buyer pays the difference.

When borrowing lowers the return. At 6.75% the loan costs more than the property's 6.50% yield, so each dollar borrowed costs more than it earns, and the return on the buyer's money, before tax and repayments, is 5.2%. This is negative leverage, and with lending rates where they are in 2026 it is, in our view, the usual starting position for a leveraged purchase of commercial property. At 5.75% borrowing lifts the return, to 6.8%. The break-even rate is a little below the yield on the price, because the buyer's money also pays the duty and costs: counting them, the property earns about 6.2% on everything paid for it (our calculation). So at 6.25%, below the yield on the price, borrowing still lowers the return, to 6.0% against about 6.2% with no loan at all.

Illustrative model

The purchase under each scenario

Line	Lender lends 50%	Lender lends 65%	Lender lends 80%	Valued 10% below the price	Interest rate at 5.75%
Maximum loan, share of value	50%	65%	80%	65%	65%
Lender's valuation, share of the price	100%	100%	100%	90%	100%
Interest rate	6.75%	6.75%	6.75%	6.75%	5.75%
Loan allowed by the value test	$750,000	$975,000	$1,200,000	$878,000	$975,000
Loan allowed by the income test	$963,000	$963,000	$963,000	$963,000	$1,130,000
Loan	$750,000	$963,000	$963,000	$878,000	$975,000
Loan, share of price or valuation	50%	64%	64%	65%	65%
The buyer's own money needed	$833,000	$620,000	$620,000	$705,000	$608,000
Short of the cash the buyer has	$133,000	$0	$0	$5,000	$0
Interest cover	1.93×	1.50×	1.50×	1.65×	1.74×
Return on the buyer's money	5.6%	5.2%	5.2%	5.4%	6.8%

The first three lines are the settings that differ between the scenarios. The loan is the lower of the two tests. The return is net rent less interest, divided by the buyer's own money, before tax, repayments and any change in value.

The same arithmetic across a range of rates shows where the switch happens, and what a lender's buffer on the rate does to the loan: from 6.75% up, each half point takes it lower.

Illustrative model

The loan at each interest rate, for three maximum loan to value ratios

Interest rate	LVR 50%	LVR 65%	LVR 80%
5.25%	$750,000	$975,000	$1,200,000
5.75%	$750,000	$975,000	$1,130,000
6.25%	$750,000	$975,000	$1,040,000
6.75%	$750,000	$963,000	$963,000
7.25%	$750,000	$897,000	$897,000
7.75%	$750,000	$839,000	$839,000

The lower of the value test and the income test, with net rent of $97,500 covering interest at least 1.5 times, for the $1.5 million property valued at its price.

Worked example: a residential development

Now a hypothetical residential development in NSW: a $2 million site, including purchase costs, and $3 million of construction over 18 months, with fees and charges of 12% of construction and a 5% contingency. The finished homes are expected to sell for $7 million in total, less selling costs of 3%. We assume a lender that lends the lower of 80% of the total cost and 65% of the expected sales value, at 9% a year, with the interest added to the loan each month: our assumptions, not any lender's policy. GST, holding costs, tax and presales are left out. New homes are generally sold with GST in the price, and development lenders commonly measure a project's value net of it, so our 65% of the $7 million gross sales figure is about 71.5% of a GST-exclusive value, and a lender lending 65% of the net value would lend about $4.1 million rather than $4,550,000 (our calculation).

In our illustration a project company owns the site and carries the loan; its owners put in the first money and guarantee it.

Illustrative model

A residential development: who owns, who lends and what secures the loan

Arrow: from one party to the other, as its label saysDashed line: a promise, not money

A diagram of five parties: Owners, directors and shareholders; Project company, owns the site; Builder; Buyers. To one side: Lender. How they connect:

How they connect

1. 1Owners to Project company Equity, paid in first
2. 2Lender to Project company Loan: first mortgage and GSA
3. 3Owners and Lender (dashed line) Guarantees
4. 4Project company to Builder Progress payments
5. 5Lender and Builder (dashed line) Side deed
6. 6Buyers and Project company (dashed line) Presale contracts

The general security agreement (GSA) covers the company's assets other than land, including its rights under the presale contracts and the building contract. The side deed with the builder lets the lender step in to finish the project. Presales are shown but left out of the model's arithmetic.

Illustrative model

Model: funding a residential development, and what goes wrong

The plan, then three things that go wrong, alone and together. Choose a scenario, or move the controls to set your own.

The planCosts 15% over budgetPrices 10% lowerSix months lateAll three

Without JavaScript the model shows one scenario: The plan.

The project

Land, with purchase costs

$2,000,000

−+

Construction cost

$3,000,000

−+

Fees and charges, share of construction

12.0%

−+

Contingency, share of construction

5.0%

−+

Months to build

18 months

−+

Sales value of the finished homes

$7,000,000

−+

Selling costs, share of sales

3.00%

−+

The loan

Interest rate on the loan

9.00%

−+

Maximum loan, share of total cost

80%

−+

Maximum loan, share of sales value

65%

−+

What goes wrong

Construction cost over budget

0%

−+

Change in sales value

0%

−+

Months late

0 months

−+

Developer's profit +$1,105,000margin on cost +19.4%

Developer's profit

+$1,105,000

Margin on cost

+19.4%

Extra equity needed during the build

$0

Developer's money back, times what it put in

1.85×

The lender's limit of 65% of the sales value sets the loan at $4,550,000, so the developer puts in $1,295,000 first, before the loan is drawn.

The loan and the developer's first contribution cover every cost until the homes are sold.

Sales could fall a further 16.3% before the profit is gone, and 35.3% before the lender is not repaid in full.

Where the money goes, and who puts it in

Equity first. The lender's two limits give $4,550,000 on value, 65% of $7 million, and more on cost, so value sets the facility. The developer pays everything above it, and pays first: its $1,295,000 goes into the site at settlement, before the lender advances anything, and because that is less than the $2 million land cost, the loan funds the rest of the site, about $705,000 (our calculation), then all of the construction. Many lenders want the site settled with the developer's own money, or already owned, before they lend, so a facility like ours, which funds part of the land, is nearer to a non-bank lender's site and construction loans than to a bank's. A lender that capped the loan just under 75% of cost, the boundary in APRA's condition for the lower risk weight, would lend about $4,366,000 and need $1,455,000 from the developer first.

The margin on cost. In the plan the homes sell for $7 million, less selling costs, against a total cost of $5,685,000, including $325,000 of interest: a profit of $1,105,000, a margin of 19.4% on cost. The facility was sized on a budget that included the contingency, which the plan does not need.

Overruns are the developer's. If construction runs 15% over budget, the 5% contingency covers a third of it, and the loan, fixed at the start, is fully drawn before the homes are finished. The developer must find $319,000 more, and the margin falls to 10.2%. Lenders fund overruns last, if at all, since lending more as costs rose would mean lending more against a shrinking margin, and they call for the money sooner than our model does. A construction loan is drawn against progress claims certified by the lender's quantity surveyor, and at each drawdown the lender checks that the undrawn facility, with any cash the developer has committed, still covers the certified cost to complete; if it does not, the developer pays the shortfall before the next drawdown. Our model lets the loan run to its limit first; the developer finds the same amount, but a real lender asks for it as soon as the overrun is certified. Lenders also usually take a side deed with the builder, so they can step in and finish, and make a level of presales a condition of the first construction drawdown.

Prices, time and how far sales can fall. A 10% fall in the sales value needs no more money during the build, but cuts the profit to $426,000, a margin of 7.5%. Six months' delay lifts the interest from $325,000 to $526,000, and the developer needs $41,000 more. With all three, the developer's result is −$258,000: it puts in $1,819,000 and gets back 0.86× what it put in, while the lender is repaid in full. In the plan, sales could fall 16.3% before the profit was gone and 35.3% before the lender was short, and shocks compound: with costs only 5% over budget and prices 15% lower, the developer's result is −$73,000. That range of prices is what presales narrow for the lender.

Illustrative model

The development under each scenario

Line	The plan	Costs 15% over budget	Prices 10% lower	Six months late	All three
Construction cost over budget	0%	+15%	0%	0%	+15%
Change in sales value	0%	0%	−10%	0%	−10%
Months late	0 months	0 months	0 months	6 months	6 months
Construction and fees	$3,360,000	$3,810,000	$3,360,000	$3,360,000	$3,810,000
Interest	$325,000	$354,000	$325,000	$526,000	$559,000
Total cost	$5,685,000	$6,164,000	$5,685,000	$5,886,000	$6,369,000
Loan limit	$4,550,000	$4,550,000	$4,550,000	$4,550,000	$4,550,000
Developer's money in the plan	$1,295,000	$1,295,000	$1,295,000	$1,295,000	$1,295,000
Extra equity	$0	$319,000	$0	$41,000	$524,000
Sales less selling costs	$6,790,000	$6,790,000	$6,111,000	$6,790,000	$6,111,000
Loan before the homes settle	$4,390,000	$4,550,000	$4,390,000	$4,550,000	$4,550,000
Developer's profit	+$1,105,000	+$626,000	+$426,000	+$904,000	−$258,000
Margin on cost	+19.4%	+10.2%	+7.5%	+15.4%	−4.0%
Developer's money back, times	1.85×	1.39×	1.33×	1.68×	0.86×
Lender's shortfall	$0	$0	$0	$0	$0

The first three lines are what goes wrong in each scenario. The developer's money in the plan is paid in before the loan is drawn; extra equity is what the developer adds once the loan is fully drawn. Sales are shown after selling costs.

How we read it

What follows is our interpretation of what the rules and the published terms mean for a business deciding how to borrow.

Matching the product to the purpose

The most expensive mistakes in business borrowing are mismatches of product and purpose, not small differences in rate. A long-lived asset financed with a facility that expires or can be called each year has to be refinanced each year, on terms the lender is free to change. For a small business that is not in default, with a loan that is not fully repaid by its instalments, a Code bank must give at least three months' notice that it will not extend the loan, and a bank that does extend or refinance it is "not required to do so on the same terms" (Banking Code, paragraphs 93 and 94).⁵ Matching the term of the money to the life of the asset avoids most of this, and any facility that expires or can be called is short-term money, whatever its name.

The cost of flexibility

Flexibility is real, and it is priced. A line fee pays for having the money available, used or not: at Westpac's 1.20% a year of the total limit,¹² a $500,000 overdraft costs $6,000 a year before any interest. If the business uses half the limit on average, that adds 2.4 percentage points to the cost of the money it actually uses, and if it uses a fifth, 6 points (our calculation). The other side of flexibility is the price of giving it up: Westpac says that during a fixed rate period a business "can't make or redraw extra repayments".³² A business is best served by as much flexibility as it will use and no more, and by knowing before it signs what it would cost to leave.

The cheapest rate is often not the cheapest money

A headline rate is one price among several, and often not the largest. A lender that lends less forces the owners to put in more of their own money, as the property model's 50% case shows, and equity is the most expensive money a business has, because its owners expect a return well above any lender's. Fees, the security taken, the guarantees asked for and the term all belong in the comparison.

Threefold Capital interpretation

What a loan costs beyond its interest rate

Cost	How it arises	Examples from lenders' pages
A line fee	Charged on an overdraft or line of credit for having it available, whether it is drawn or not	CommBank, 1.70% a year; Westpac, 1.20% a year of the total limit
Upfront fees	Charged when the loan is set up, and heaviest on small, short loans	Prospa's origination fee of 2% to 3.5%; Westpac's $250 establishment fee on its unsecured loan
Fees on invoices	Only part of each invoice is advanced, and fees come off the balance	ScotPac pays up to 95% "less our fees"; NAB charges an application fee, a facility fee and a purchase charge
Leaving early	Fixed-rate loans and hire purchase can restrict or charge for early repayment	ANZ: early repayment fees on hire purchase "may be significant"; Westpac: no extra repayments in a fixed period
The equity a smaller loan requires	Every dollar the lender will not lend comes from the owners	In our model, $833,000 at a 50% limit against $620,000 at 65%
Security and guarantees	A guarantee puts the owners' own assets behind the loan	Westpac, ANZ, Prospa and Moula take or may take personal guarantees
A short term, or a facility that expires each year	The loan must be renewed, on terms the lender need not repeat	Judo Bank's line of credit: a 12-month term with annual review; Banking Code paragraph 94

Conclusion

Business lending is a set of tools, each built for one kind of asset and one source of repayment, and much of the risk in borrowing lies in using the wrong one. Published terms vary widely from lender to lender, and each is a ceiling under conditions, not a promise. What decides the loan is the smallest amount that any of the lender's tests allows.

In our property model at 6.75% the rent, not the value, sets the loan, so a higher LVR limit adds nothing, a valuation below the price costs the buyer directly, and a lender's buffer on the rate cuts the loan again. In our development model the developer's money goes in first and covers every overrun, and the lender is repaid in full even when the project loses money, which is the structure working as lenders intend. A business that knows which test binds, what each product is for and what a loan costs beyond its rate will, we think, borrow on better terms and be surprised less often when conditions change. Part 5 follows the decision itself, stage by stage.

Method and sources

Cut-off. This article uses information published on or before 12 October 2026. Every lender's page was read on that day, and the exhibits give any date a page shows.

Sources. Rules come from the National Consumer Credit Protection Act 2009, APRA's prudential standards APS 112 and APS 220, the Banking Code of Practice and ASIC; lenders' terms from each lender's own pages and broker guides, never from comparison sites or press reports; private credit and non-bank lending from the Reserve Bank. The models' rates, 6.75% on the property loan and 9% on the development loan, are illustrative assumptions, not market rates; the Reserve Bank publishes the rates on new loans to small, medium and large businesses each month in its Statistical Table F7, Business Lending Rates.⁴³

Our calculations. The property model's two tests meet at $97,500 divided by 1.5 times $975,000: 6.67%. The property earns $97,500 on $1,582,500, the price plus 5.5%: 6.16%. The development loan funds $705,470 of the site, the $2,000,000 land cost less the developer's $1,294,530. Net of GST the sales are $7,000,000 divided by 1.1, $6,363,636; 65% of that is $4,136,364, and the model's $4,550,000 limit is 71.5% of it. The Code's debt test leaves $5,000,000 less the $4,550,000 limit: $450,000. The debt service example is $1,000,000 less $250,000 of tax and $150,000 of replacement spending: $600,000, on assumed figures. A 1.20% line fee on $500,000 is $6,000 a year: 2.4% of an average $250,000 drawn, 6.0% of $100,000. The fee comparison is the internal rate of return of a two-year loan repaid in 24 equal monthly instalments with 3% deducted at the start: 3.0 to 3.1 percentage points a year above the loan's own rate at rates from 8% to 16%.

The models. Both are hypothetical and every setting is our assumption; each model's note on the page says what it includes and leaves out, and the text says where lenders' practice differs. Each model is written twice, once for the page and once to recalculate as the controls move, and the two are tested against each other on every scenario and thousands of other settings. Every figure quoted from a model is filled in from it by the build.

Labels. Each chart, table and model carries one of four labels. Reported data: figures published by the source named. Threefold Capital interpretation: our reading of the evidence. Illustrative model: hypothetical figures from our models. Forward-looking scenario: a planning case, not a forecast.

Limitations. Lenders change their products, limits and fees often, and some pages disagree: Westpac's customer and broker pages on invoice finance thresholds, an older Westpac flyer and its broker page on lease doc limits, and Prospa's two pages on the security it takes above $150,000. Pepper Money's page dates its information to July 2024. What this part says of common lender practice, on how construction loans are drawn, what makes a presale qualify, recourse in invoice finance, how larger loans are priced and tested, and how a project's value is measured, is general description, not any lender's terms. APRA's standard weights apply to banks on the standardised approach, and the Banking Code binds only the banks that have adopted it.

Corrections. If you see an error, please tell us at threefoldcapitalau@gmail.com. We correct published articles and record what changed at the top of the page.