Do I Need a Commercial Mortgage?

Are you a business owner looking for the perfect property for your business? A commercial mortgage is your best bet to acquire a great space. Taking out a commercial mortgage is the best way to lay your claims on real estate, using a loan on the property, which acts as collateral.

This mortgage is typically reserved for borrowers who are business or company owners, as opposed to individuals who are in an incorporated or a limited company. Thus, this loan will work best for companies of a particular type and differs quite significantly from residential mortgages.

Read on to learn more about a commercial mortgage.

What exactly is a commercial mortgage?

This type of mortgage is taken out by businesses and investors that wish to produce income or work out of the purchased commercial property. It can also be refinanced.

Certain types of properties will qualify as commercial mortgage properties. This depends entirely on the kind of business undertaken in the space. Typical commercial properties are retail, industrial/factory, or office spaces. In addition, specific residential properties will also qualify as commercial property. For example, a residential property with one to four units is a zone with a dual residential and retail space. A purely residential property with five or more units will also be considered for this mortgage type.

Commercial mortgages in Canada usually fall within the range of $500,000 to $2 million.

How long does it take to acquire a commercial mortgage?

Expect a much longer closing time for commercial mortgages compared to residential ones. While residential mortgages typically close within a couple of weeks to 90 days, commercial properties are closed within two months to a year.

Do you need a commercial mortgage?

Commercial mortgages are perfect for certain kinds of buyers. For example, real estate investors are ideal for this loan, as the property is legally recognized as an investment. Thus, if you are a real estate investor or business owner, this mortgage type is ideal. The amount of money you’ll be able to borrow will depend on the type of property you choose, for example, whether it is a construction project, farmland, etc.

How can I qualify for a commercial mortgage?

When deciding if this mortgage is right for your business needs, you must figure out the qualification criteria. The qualifications needed for a commercial mortgage are typically more strict than a residential mortgage. This is because lenders want to ensure that you will meet your financial obligations down the line. Let’s take a look at the main requirements.

1. Cash availability: Lenders will need proof that your business has enough cash flow to warrant taking out a mortgage. You will need to prove that you will be able to make the monthly payments. In addition, most lenders will ask you to invest some money to equalize the loan-to-value ratio.

2. Excellent credit: Having a great credit score is an absolute must. As the business owner, you will need to demonstrate a perfect personal credit score. Thus, your personal financial history matters as much as your business’s economic history. While it is possible to take out a mortgage with a lower credit score, remember that this comes with increased interest rates.

3. Business status: If your company has been operating fully for some time, your lender will want to verify your financials. They will check if your business appears stable and is generating a steady and consistent profit. However, not all your financials need to be liquid; they can also be in the form of stocks and bonds.

4. Contribution: You will need to put forward a higher down payment, which is typically around 50%. This can seem excessive when residential property down payments generally are 20% to 30%. However, remember that there is a higher risk associated with commercial properties.

If you’re worried about the loan-to-value ratio, remember that it differs according to the property too. Depending on the property, you can expect the balance to be anywhere from 55% to 80%, with farmland at the lowest and storefronts at the highest loan-to-value ratio. Thus, if you have the means to manage the rates, your business would be a great candidate for a commercial mortgage.

How can I get help for my commercial mortgage?

To get started on obtaining the loan, you will need the assistance of a reputable and trusted commercial mortgage broker. Your broker will be your main point of contact for the whole process and guide you through it with ease. They will explain everything involved, do the majority of the legwork, and help you find the best terms and rates. Going with a broker can also speed up the process significantly.

An important point to note is that mortgage brokers do not earn commissions for commercial mortgages. Instead, their services are paid for directly by you, the borrower. However, enlisting the help of a mortgage broker will save you thousands of dollars in the long run, so it is well worth the service fees.

Taking out a commercial property can be challenging to navigate. There is a lot of information, and deciding on the best rates and terms can be difficult. To ease your way through the process, enlist the help of an experienced commercial mortgage broker. Our team at Canadalend.com has years of experience helping businesses find affordable mortgages so they can achieve their goals.

For more information on taking out a commercial mortgage, call