How lenders work out how much you can borrow
Every commercial lender sizes the loan with two separate tests, then lends the lower of the two:
- The LVR test. The loan can't exceed a set share of the property's value. Across our panel, commercial security is funded up to 70% LVR.
- The serviceability (DSCR) test. The property's net income has to cover the annual repayments, calculated at a test rate above today's rate, by a minimum margin.
A home loan borrower usually hits the LVR limit first. A commercial borrower often hits the income limit first — which is why a property can be worth plenty and still only support a modest loan.
What is DSCR?
The debt service coverage ratio compares the income a property produces with the cost of the loan:
DSCR = net annual income ÷ annual loan repayments
A DSCR of 1.00 means the income only just pays the loan. Lenders want a buffer — the minimum varies by lender, property type and lease quality. To find the largest loan the income supports, the calculator works backwards: income ÷ minimum DSCR gives the most you can spend on repayments a year, and that repayment is converted into a loan amount at the test rate.
Worked example
Take a $1,500,000 commercial property earning $120,000 a year in net rent. Using an example test rate of 9.00%, a minimum DSCR of 1.30× and a 20-year principal & interest term:
| Test | Net rent $120,000 | Net rent $170,000 |
|---|---|---|
| LVR limit (70%) | $1,050,000 | $1,050,000 |
| Rent cover (DSCR) limit | $854,961 | $1,211,195 |
| Maximum loan | $854,961 | $1,050,000 |
| Deposit needed | $645,039 (43.0%) | $450,000 (30.0%) |
At the lower rent, the income — not the LVR — sets the loan, and the buyer needs well over 30% down. Lift the rent and the LVR becomes the limit instead.
How much deposit do you need for commercial property in NZ?
Start with at least 30% of the price, because commercial LVRs generally stop at around 70%. Then add purchase costs — legal fees, a registered valuation, building and due diligence reports. New Zealand has no stamp duty, but GST treatment matters: most sales between GST-registered parties are zero-rated, and the IRD's GST guidance is worth checking with your accountant before you sign.
If the calculator shows the DSCR limit is lower than the LVR limit, your real deposit is bigger than 30%. That's the number to plan around.
Investor vs owner-occupier
Investors are assessed on the lease: net rent after the outgoings the landlord pays, the tenant's strength and how long the lease has left to run. Owner-occupiers are assessed on the business — lenders usually use earnings before interest (EBITDA) and test the new loan alongside the business's other debt. Enter whichever applies as your net annual income.
How to borrow more against a commercial property
- Lift or lock in the income — a rent review, a new lease or a longer term all improve the DSCR.
- Change the structure — a longer term or an interest-only period lowers the repayment being tested.
- Add security — equity in another property can support a higher loan than the building alone.
- Use a different lender — long-term non-bank finance assesses serviceability differently from the banks.
- Bridge the gap — a short-term commercial loan can fund the purchase while a vacant property is leased up, then refinance on to long-term debt.
Once you know the loan size, the commercial loan calculator shows what it costs to repay, and the yield calculator checks the rent against the price. For the full lending criteria, see commercial property finance.