Obtaining a vacant commercial land loan

As an investor, you might be having a vacant space that you need to develop but lack adequate financing. Plenty of financiers out there that are willing to help. But, the question is what can you convince the banks to give you a commercial loan that you can utilize to develop your vacant space? If you lack prior information, it can be very tough to obtain that kind of loan.

Fortunately, we are here to show you how you can easily obtain the commercial loan that you can use to regularly finance wholly vacant and partially vacant commercial buildings.

Can a bank easy approve such kind of a loan?

The popular notion out there is that you will just approach a bank with an investment strategy that you intend to purchase a vacant commercial land to hold and sell after a few years when the price is higher.

On paper, this might look like a nice idea. But will the banks succumb to such a strategy?

Maybe and maybe not! It all depends on land size, zoning, access to services and essential utility, and the location.

How much of the loan can you borrow?

The amount that you can borrow to use on a vacant land usually varies depending on nature and size of the property and the kind of lender. But the general rule is as follows:

  • For lands that are sized over 60 hectares, one can borrow between 50-70% of the value of the land.
  • While you will be able to borrow up to around 95% of the property value for those lands that go up to 50 hectares and consist of a house situated on the block.
  • For a land that is zoned residential and range between 2.2 hectares to 60 hectares, you are allowed to borrow from 80 % to 90% of the land value.
  • For the vacant farmlands property, a borrower is usually restricted to about 60%. But if you have a strong case to present, you can allowed to borrow up to around 70%.

However, there are some cases whereby the financier can give you preferential treatment that is beyond the ones stated above. In case you own a residential property which has enough equity or have a guarantor around, the banks can allow you to borrow up to the whole 100% of the exact land value. While the usual term for a commercial finance when it comes to standard loan is usually 10 to 15 years, the financier can qualify you for a loan that has a longer term of up to 25 years if you have the equity or guarantor.

In all the above cases, you will be charged a commercial interest rate that is similar to an individual that is purchasing a commercial building.

What will banks assess for this type of loan?

Just like the vacant residential land, lenders of this kind of loan usually examine whether it is easy to sell that vacant commercial land in case the borrower defaults the loan.

For this reason, banks will look at the following attributes:

Purpose of the Land

Some lenders want evidence before any loan approval. They may require that borrowers commence development on the commercial land either in the next 1 or 2 years.

There are other financiers who will permit land banking. In such an instance, the borrower will have to pay substantial dividends after deciding to sell the land to any property developer.

Land size

Banks will first consider the land size before moving to anything else.

Land size is usually a simple issue to tackle, since the larger the size the less one can borrow. However, there are exceptions where the farmland entails a house.

Zoning and location

Commercial land property can be zoned for commercial use like retail commercial industrial or for agricultural use. Or it can also be zoned for residential development.

Due to that fact, it can either reduce or increase the lands’ potential market. As you well know that banks are risk averse such that they will inquire to know whether your property has a market.

There are some lenders who might consider when the land as a Greenfield site so to later sell to developers at a higher price. But that whole scenario depends on your overall financial situation and the size of the vacant land.


When dealing with a commercial loan, this kind of attribute becomes essential. Financier will check whether there is a direct access of all-weather roads to the land. As long as the property is well maintained and a standard vehicle can assess it.


There are some services like having electricity grid connection without additional costs that must be in the property for the loan to be approved.

It is also quite significant to have accessibility to sewerage and town water facilities. However, for farmlands that mostly benefit from agribusiness, such facilities are not necessary that is but there can be an installation of septic tanks and water tanks.

Why banks allow land banking?

If it is a residential land, banks highly oppose land banking as it is a form of speculative investment. For such kind of land, a borrower will be purchasing the land to later subdivide it while relying on the residential buyers or zoning changes.

Many risk lenders do not like dealing with land in the rural areas since their prices tend to fluctuate dramatically. A couple of the lenders allow land banking on vacant commercial land as the borrower is gaining the loan at a lower Loan to Value Ratio (LVR).

There are other banks that will need a borrower to commence development on the land within a period of 1 to 2 years. However, the strength of the loan application and the kind of lender are the major determinants of this kind of financing.

But, in general, lenders qualify borrowers for this lending type when they have a strong asset and income position.

To wrap it up

If you have a vacant piece of land that you intend to set up a commercial property in the near future, you need to approach a bank for the relevant kind of financing. Getting the vacant commercial loan that will enable you to erect the building will require that you get acquainted with the bank approval procedure and the amount that you can be able to get. If you require much information about the investment type you can set up in your vacant land, and approach the professional mortgage brokers around your area.