How to Finance a Warehouse Purchase for Your Business

A warehouse purchase typically requires a secured commercial loan with a loan-to-value ratio of 60% to 70%, meaning you'll need a deposit of 30% to 40% of the property value plus costs.

Buying warehouse property changes the financial profile of your business. You're shifting from paying rent to building equity, but you're also taking on debt that affects cashflow and borrowing capacity. The loan structure you choose now determines how much flexibility you have later when you need working capital or want to expand. Most business owners focus on the interest rate and miss the structural features that matter more over a 10 or 15-year holding period.

Why Lenders Treat Warehouse Purchases Differently

Lenders assess commercial property loans based on two things: the property's value as security and your business's ability to service the debt. A warehouse isn't like residential property. The market is smaller, sale times are longer, and the property might be purpose-built for your operations. That makes it harder to sell if things go wrong, so lenders want a larger deposit and stronger serviceability.

Your business financial statements become the focus. Lenders look at profit and loss over the past two years, a cashflow forecast that includes the new loan repayments, and a debt service coverage ratio that shows you can comfortably cover the loan even if revenue dips. Most lenders want a ratio of at least 1.25, meaning your operating income is 25% higher than your debt obligations.

If your business is turning over $2 million a year with consistent profitability and you're buying a warehouse valued at $1.2 million, a lender will typically finance up to $840,000. You'll need $360,000 as a deposit, plus another $40,000 to $60,000 to cover stamp duty, legal fees, and building inspections. That's a significant upfront cost, which is why the loan structure matters as much as the loan amount.

Secured vs Unsecured: What Actually Applies to Property

A warehouse purchase will almost always be funded through a secured commercial loan, with the property itself as collateral. Some business owners ask about unsecured business finance to cover part of the deposit or fit-out costs, but most lenders won't allow that if the funds are going directly into the property transaction. Unsecured lending is typically reserved for working capital, equipment, or operational expenses.

That said, if you need to free up cash after settlement for fit-out work, stock, or other business needs, a separate unsecured facility might make sense. Just don't expect to use it as part of the deposit. Lenders want to see genuine savings or equity from another property, not borrowed funds.

Fixed or Variable: Matching the Rate to Your Cashflow

Commercial property loans are available with a fixed interest rate, variable interest rate, or a split between the two. A fixed rate gives you predictable repayments, which helps with budgeting and cashflow forecasting. A variable rate usually starts lower and gives you access to features like redraw and the ability to make extra repayments without penalty.

Consider a manufacturing business in Dandenong buying a 1,500-square-metre warehouse. The loan is $900,000 over 20 years. The business has seasonal cashflow, with stronger revenue in the second half of the year. Fixing the entire loan might seem safer, but it locks them into a rate and removes flexibility. Instead, they fix 60% of the loan for three years to stabilise most of the repayment, and keep 40% variable with redraw. That lets them park surplus cashflow during strong months and draw it back out when needed, without applying for a separate business line of credit.

The variable portion also gives them the option to refinance or restructure part of the loan if interest rates drop or their circumstances change. That level of flexibility is worth considering, even if the variable rate is slightly higher at the outset.

What Lenders Want to See in Your Application

A strong application for a commercial property loan starts with your business financial statements, but it doesn't end there. Lenders want a business plan that explains why you're buying, how the property supports your operations, and what happens to your cashflow once you own it. If you're currently leasing and paying $60,000 a year in rent, and the new loan repayments will be $72,000 a year, you need to show that the extra $12,000 is manageable and that you're not stretching serviceability.

Your business credit score also matters. A history of late payments, defaults, or tax debt will either reduce the loan amount available or push you toward a specialist lender with higher rates. If your credit file has issues, address them before applying or be prepared to explain them in detail.

Lenders also look at the property itself. They'll want a valuation, a building inspection, and evidence that the site is zoned for your intended use. If you're buying a warehouse in a regional area where comparable sales are limited, expect the lender to be more conservative with the loan-to-value ratio. In metro areas like Melbourne's western suburbs, where industrial property regularly changes hands, you'll generally get better loan terms because the security is more liquid.

Loan Structure: Principal and Interest vs Interest-Only

Most commercial loans for property are structured with principal and interest repayments, but you can often negotiate an interest-only period of one to five years. That reduces your monthly repayments in the short term, which can help if you're also funding a fit-out, hiring staff, or managing other costs that come with moving into your own premises.

Interest-only makes sense when cashflow is tight in the early years or when you plan to sell the property within a set timeframe. It doesn't make sense as a long-term strategy, because you're not reducing the debt. If you take a $1 million loan on interest-only for five years, you still owe $1 million at the end of that period. The repayments then jump significantly when you switch to principal and interest, so you need to plan for that transition.

A logistics company buying a warehouse in Geelong might use a two-year interest-only period while they relocate operations and build up their client base in the new location. Once revenue stabilises, they switch to principal and interest repayments. That approach works because they've modelled the cashflow and know they can handle the higher repayments after year two.

Borrowing Capacity and How It Shifts After Purchase

Once you own the warehouse, your business balance sheet changes. You've added an asset, but you've also added debt. That affects your borrowing capacity if you need additional finance later for equipment, vehicles, or working capital. Lenders calculate serviceability based on your existing commitments, so a large commercial property loan reduces how much you can borrow for other purposes.

If you think you'll need access to additional funding within the first few years, consider setting up a business line of credit or overdraft facility at the same time as the property loan. It's often easier to secure those facilities when the property loan is approved, because the lender is already assessing your serviceability and the property can sometimes be used as additional security.

Settlement Costs and What They Actually Add Up To

Stamp duty on commercial property is calculated on the full purchase price and varies by state. In Victoria, for a $1 million warehouse, expect to pay around $55,000 in stamp duty. Legal fees typically run between $3,000 and $6,000, depending on the complexity of the contract and whether there are any lease-back arrangements or tenant issues. Add another $2,000 to $3,000 for building and pest inspections, valuation fees, and loan establishment costs.

Those costs need to come from your own funds or equity. Most lenders won't finance settlement costs on top of the property price, so plan for them separately. If you're short on cash but have equity in another property, you might be able to use that as security to cover part of the deposit and costs, but that adds complexity and cross-collateralisation, which we regularly see trip up business owners down the line.

When a Broker Adds Value to the Process

Commercial lending isn't as standardised as home loans. Different lenders have different appetites for different industries, property types, and regional locations. A broker who works in business loans regularly will know which lenders are currently writing warehouse purchases, what their serviceability calculators actually accept, and how to structure the application so it gets across the line.

In our experience, business owners often underestimate how much documentation is required and how long the process takes. A well-prepared application with a clear business plan, clean financials, and a realistic cashflow forecast will move through underwriting faster than one that's missing key details or raising red flags. A broker can help you prepare that application before it goes to the lender, which saves time and improves your chances of approval.

If your business is ready to move from leasing to ownership, or you're weighing up whether a warehouse purchase makes financial sense right now, call one of our team or book an appointment at a time that works for you.

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