Australia
Most business owners accept the first rate their lender offers. That's a mistake. Commercial loan pricing is more negotiable than most borrowers realise — and the gap between a well-negotiated rate and an accepted rate can cost tens of thousands over a loan term.
This guide covers what actually moves commercial loan rates and what you can do about it before and during negotiations.
Understand What You're Actually Negotiating
Commercial rates have two main components: a base rate (typically BBSY — the Bank Bill Swap Bid Rate) and a customer margin. The base rate moves with market conditions and isn't negotiable. The margin is.
Your margin reflects the lender's risk assessment of your business. A high-risk assessment means a high margin. Reducing the lender's perception of your risk — through better financial presentation, stronger security, or improved business metrics — directly reduces your margin.
Understanding this distinction matters. You can't negotiate the base rate. You can negotiate the margin, and that's where the work happens.
Ready to discuss your options? Book a Strategy Session with Key Choice Lending.
Time Your Application Strategically
Timing influences rate outcomes more than most borrowers realise.
> Lender appetite cycles
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> Banks have quarterly and annual lending targets. During periods when a lender is actively building their commercial book, they price more aggressively to win business. During periods of consolidation or when they've hit targets, pricing loosens. An experienced broker knows which lenders are in growth mode at any given time.
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> Your own financial cycle
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> Apply when your trailing 12-month financials look strongest. For seasonal businesses, this means applying after peak season. For businesses that have recently improved margins or reduced debt, wait until those improvements show clearly in your financials rather than applying while the turnaround is still in progress.
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> Rate environment
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> Fixed commercial rates fluctuate based on wholesale funding costs independently of the RBA cash rate. Periods when fixed rates are unusually low relative to variable rates can present genuine opportunities to lock in favourable pricing for 2-3 years.
Present Your Financials to Justify a Lower Risk Grade
Lenders assign a risk grade to your business before they set your margin. That grade is based on their reading of your financials. How you present those financials affects the grade they assign.
> Normalise your EBITDA
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> Lenders adjust EBITDA for one-off items, owner salaries above market, and non-recurring costs. Do this yourself before the lender does it — and do it more thoroughly. If you had a significant one-off expense last year, quantify it clearly and show what normalised EBITDA looks like. Lenders who understand your adjustments grade you more accurately than those who have to guess.
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> Explain trends proactively
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> A declining revenue year followed by recovery looks different when explained than when left to the lender's interpretation. If a trend exists — positive or negative — provide context before you're asked. Proactive explanation signals management competence. Waiting to be asked signals you hoped they wouldn't notice.
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> Show forward cash flow
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> Historical financials tell lenders what your business has done. Cash flow projections tell them what it will do. Conservative, well-supported projections for the next 12-24 months — showing comfortable DSCR even under stress scenarios — reduce lender uncertainty and support better pricing.
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> Demonstrate covenant headroom
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> Show lenders not just that you meet their thresholds but that you meet them comfortably. A business with DSCR of 1.8 against a 1.25 minimum is a meaningfully different risk than one at 1.3. Make that gap visible and explicit.
Use Security Strategically
Security quality directly affects your margin. Higher quality security means lower lender risk means lower margin.
> Offer the right security first
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> Commercial property in a major centre commands the best pricing. Plant and equipment security results in higher margins than property. Unsecured facilities carry the highest margins. If you have property available as security, lead with it — don't offer equipment security when property is available.
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> Optimise your LVR
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> Within acceptable ranges, lower LVR means lower pricing. If you can contribute additional equity to reduce your LVR, model whether the rate saving justifies the equity deployment. On a $2 million facility, reducing LVR from 75% to 65% through additional security or equity can meaningfully reduce your margin. LVR limits vary by lender and are subject to individual assessment.
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> Cross-collateralisation trade-offs
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> Offering additional security across multiple properties can reduce your margin but creates cross-collateralisation risk — default on one facility can trigger action across all secured assets. Weigh the rate saving against the structural risk before agreeing to cross-collateralise.
Manage Rate Risk Actively
Negotiating a good rate at origination is one thing. Managing what happens to your rate over time is another.
> Fixed vs variable — think beyond the initial rate
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> Fixed commercial rates typically carry a premium to variable rates at origination. That premium buys you certainty — your margin doesn't move during the fixed period regardless of lender repricing. For businesses with tight margin or predictable cash flows, the certainty value can justify the premium. For businesses comfortable with variability, variable rates preserve flexibility to refinance or make additional repayments.
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> Hedging for larger facilities
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> On larger commercial facilities, interest rate swaps and cap products can manage rate exposure without fixing the underlying loan. These instruments allow you to cap your rate at a maximum level while retaining downside benefits if rates fall. They require specialist advice and suit facilities above $1-2 million where rate volatility has material cash flow impact.
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> Annual review leverage
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> Most commercial loans have annual reviews. Use these proactively rather than reactively. If your business has improved since origination — better financials, lower LVR, longer trading history — take that case to your lender before the review rather than waiting to see what they offer. Lenders respond to evidence of improvement presented by borrowers better than they respond to simple requests for rate reductions.
Use a Broker to Create Competitive Tension
The single most effective rate negotiation tool is a competing offer. Lenders respond to competitive tension in a way they don't respond to requests.
An experienced commercial broker can approach multiple lenders simultaneously, creating genuine competition for your business. The lender who knows you have alternatives prices differently than the lender who assumes you don't.
Brokers also understand lender-specific appetite. Some lenders price aggressively for specific industries, loan sizes, or security types. Matching your application to lenders whose appetite aligns with your profile produces better pricing than approaching lenders generically.
Don't assume your existing banking relationship produces the best rate. Relationship pricing exists but it's rarely as competitive as what you'd get from a fresh competitive process. Your banker knows you — but they also know you haven't shopped the market recently.
Fees and rates vary by lender and are subject to change — confirm current pricing with your broker.
Key Choice Lending has access to 72+ lenders and has supported Australian borrowers through more than $1 billion in transactions. Founder Matthew Clark is a two-time Amazon bestselling author and Better Business Award winner. Book a Strategy Session — no obligation, focused on your situation.
The information provided in this blog is for educational purposes only and should not be considered financial advice. Always consult with a professional financial advisor or lender for specific lending decisions.
