How Business & Commercial Lending Decisions Are Assessed
Business and commercial lending decisions in Australia are assessed using structured credit assessment frameworks designed to evaluate cash flow sustainability, business risk, entity structure, and downside protection.
While the underlying credit logic is shared across all lending, business and commercial lending is assessed differently to residential lending due to higher income volatility, operational risk, and ongoing performance monitoring.
This section explains how business and commercial lending decisions are made — how risk is assessed, how structures are evaluated, and why outcomes differ — not how to apply or which facility to choose.
How the credit framework is applied to business lending
In a business lending context, lenders apply the shared credit assessment framework described in How Lending Is Assessed, with additional focus on:
- Cash flow reliability and normalisation
- Business model and industry risk
- Entity structure and legal separation
- Security position and downside protection
- Ongoing review and covenant requirements
- Exit and refinance risk
Unlike home loans, business lending is assessed as an ongoing risk, not a one-time approval.
What lenders are actually testing in business lending
When assessing a business or commercial facility, lenders are not simply asking whether repayments can be met today.
They are asking:
Can this business continue to service debt across cycles, shocks, and review points — and what happens if it cannot?
To answer that, lenders independently test and then assess together:
- Sustainable cash flow (normalised earnings)
- Business volatility and concentration risk
- Industry exposure and cyclicality
- Entity and ownership structure
- Security coverage and enforceability
- Management capability and dependency
- Exit pathways and refinance risk
- Policy settings at the time of assessment
Each component must stand on its own.
Cash flow assessment and normalisation
Business lending places primary weight on cash flow, not income in the personal sense.
Lenders assess:
- Historical trading performance
- Normalised earnings (adjusting for one-offs)
- Add-backs and exclusions
- Forward sustainability, not growth projections
- Sensitivity to revenue or cost changes
This explains why:
- Strong turnover does not guarantee approval
- Profits may be adjusted downward
- Short trading history increases risk
- Different lenders assess the same business differently
Cash flow is assessed conservatively and defensively.
Business risk and industry exposure
Lenders evaluate how a business earns money, not just how much it earns.
Risk assessment includes:
- Industry stability and cyclicality
- Customer concentration
- Key person dependency
- Regulatory exposure
- Supply chain or contract reliance
Higher perceived business risk increases:
- Pricing margins
- Security requirements
- Review frequency
- Covenant intensity
Entity structure and lending mechanics
Business lending outcomes are strongly influenced by how the business is structured.
Assessment considers:
- Trading entity vs asset-holding entities
- Trusts, companies, partnerships, and hybrids
- Inter-entity loans and guarantees
- Tax and legal separation
- Who ultimately bears repayment risk
Structure affects:
- Serviceability treatment
- Security access
- Enforcement rights
- Approval pathways
Security, covenants, and downside protection
Unlike residential lending, security in business lending is about loss mitigation, not just collateral value.
Lenders assess:
- Security coverage and enforceability
- Personal guarantees
- Property vs non-property security
- Priority and ranking
- Loan-to-value and coverage ratios
Business facilities often include:
- Financial covenants
- Performance reporting requirements
- Review and re-pricing triggers
These are not punitive — they are risk controls.
Ongoing reviews and reassessment risk
Business and commercial lending is subject to regular review.
Reviews may assess:
- Updated financial performance
- Covenant compliance
- Security position
- Market and industry changes
- Policy shifts
This explains why:
- Terms can change without new borrowing
- Refinancing is not guaranteed
- Facilities may be restructured or reduced
- Exit planning matters
Approval is not the end of assessment — it is the beginning.
Common business & commercial lending scenarios
While the framework is consistent, its application varies significantly by business type and structure.
The following scenario explainers show how assessment logic is applied in practice:
- Self-Employed Borrowers
- Trading Businesses
- Property-Backed Business Loans
- Development & Construction
- Professional Practices
- Complex Multi-Entity Structures
Each page explains how lenders assess risk, not what a business should do.
Business & commercial lending concepts & mechanics
Some mechanics apply broadly across business and commercial lending and sit outside individual scenarios.
These include:
- Commercial loan types and facilities
- Covenants and ongoing reviews
- Refinancing and restructuring risk
These pages explain mechanics and risk controls, not suitability.
How to use this section
This section:
- Sits beneath How Lending Is Assessed
- Explains why business lending behaves differently to home loans
- Supports interpretation of lender decisions
- Can be read in any order
It is a reference layer, not a guide to application.
Important information
This material provides general information about how business and commercial lending assessments work.
It does not consider personal circumstances and does not constitute credit or financial advice.