FOR BUSINESSES
Commercial Mortgage
A commercial mortgage is commonly used for:
- Businesses investing in income-producing real estate properties greater than $500,000
- Financing multi-residential (minimum 7 rental units), industrial, office or retail property
- Financing properties that are readily marketable and located in an active resale and rental market
Eligibility requirements:
- Mortgages require a current appraisal (AACI qualified, bank approved appraiser), a passing Environmental report (Phase I ESA), and may require a Building Condition Report
- Canada Mortgage and Housing Corporation (CMHC) requests, if required, must comply with CMHC guidelines
Key benefits
- Competitive interest rates, terms and conditions
- Variable and fixed rate options are available, with the ability to convert from variable to fixed if interest rates fluctuate
- CMHC insurance is available when required
Commercial Financing in British Columbia
Understanding the local British Columbia real estate market, its economics and trends, combined with a strong network of commercial lenders across Canada allows our British Columbia commercial lending team to provide our customers with the most competitive financing available for all your commercial real estate needs anywhere in British Columbia.
How commercial mortgage works
Key metrics such as the loan-to-value ratio, debt service coverage ratio, and the property’s revenue-generating potential are scrutinized to qualify the loan amount, interest rates, and the amortization period. The interest rates on mortgages may be fixed or variable, with fixed rates providing consistency in monthly payments and variable rates fluctuating with market conditions.
The loan-to-value (LTV) ratio represents the amount of the loan compared to the value of the estate, influencing the risk assessment for lenders.
Borrowers can utilize tools like a commercial mortgage calculator, to estimate monthly amortization payments and the impact of different commercial mortgage rates on their financing costs. Once the loan amount is approved, the estate acts as collateral, ensuring the lender can recoup losses in case of default.
Types of commercial mortgages
In Canada, a myriad of mortgage types caters to the diverse range of properties and the unique financial needs of business owners and investors.
Hard money loans:
- Short-term loans with higher interest rates, often used for quick financial needs, and typically based on the value of the estate rather than the borrower’s credit.
CMHC-Insured mortgages:
- Mortgages insured by the Canada Mortgage and Housing Corporation (CMHC), often providing favorable terms like lower down payments and competitive interest rates.
Conventional commercial mortgages:
- Traditional loans offered by banks or credit unions for purchasing, refinancing, or renovating properties.
Bridge loans:
- Short-term loans used to bridge the gap between short-term financial needs and long-term financing solutions.
Blanket mortgages:
- A mortgage that covers more than one piece of real estate, useful for developers or investors managing multiple properties.
Subprime mortgages:
- Mortgages offered to homebuyers with poor credit history, but they can also apply to commercial mortgages for borrowers with less-than-perfect credit.
Permanent loans:
- Long-term financing used to pay off construction loans or other short-term financing solutions.
Fixed-rate commercial mortgages:
- Mortgages with an interest rate that remains constant throughout the life of the loan.
Construction loans:
- Short-term loans used to finance the construction or renovation of real estate.
Mezzanine loans:
- A hybrid of debt and equity financing that gives the lender the right to convert to an equity interest in the company in case of default, after venture capital companies and other senior lenders are paid.
Variable or adjustable-rate commercial mortgages (ARMs):
- Mortgages with interest rates that can change based on market conditions.
FAQs
Questions
you may have!
What is a commercial mortgage?
A commercial mortgage is a loan secured by property or commercial real estate, such as an office building, shopping center, industrial warehouse, or apartment complex. The proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop property.
What’s the difference between residential mortgages and commercial mortgages?
Residential mortgages are typically for personal residences, while commercial mortgages are for properties used for business purposes. Commercial mortgages usually have high rates of interest, more stringent eligibility criteria, and shorter amortization periods compared to residential mortgages.
How does cash flow impact my eligibility for a commercial mortgage?
Cash flow demonstrates your ability to cover the mortgage payments. Lenders will assess your business’s cash flow to ensure that you have sufficient revenue to service the debt.
How is Loan to Value Ratio (LTV) calculated in a commercial mortgage?
The loan-to-value (LTV) ratio is calculated by dividing the mortgage amount by the appraised value of the commercial property. It’s a measure used by Lenders to assess the risk associated with the loan.
Is my company eligible for a commercial mortgage?
Business history lasting at least two years; proof of profitability and revenues, including a business plan and financial projections showing a minimum debt-service coverage ratio of 1.25; and a minimum credit score for both the business and the owner(s) of the business and the small business loans themselves.
In addition to credit, the requirements for a down payment are generally higher than with a residential mortgage, ranging from 20% to 50%. The type of small business loans that you are in also affects what kind of mortgage you can get.
If your company doesn’t meet some of these criteria, don’t lose heart: there are alternative creditors designed to offer loans to help newer businesses, those with low risk or poor credit scores, and businesses in unusual situations. You will probably still have some options to choose from!
What’s the average interest rate on a commercial mortgage?
Its debt-service coverage ratio, its credit score, the size of its down payment, and other pertinent financial data.
The variability in the type and size of the down payment for businesses taking on higher rates of commercial mortgages, along with differing amortization schedules, means that rates of interest fluctuate quite a lot – generally anywhere from 4% to 10%.
Both fixed rate and variable rate commercial mortgages are available.
How much can I borrow via a commercial mortgage?
Mortgage amounts vary, both by lender and according to each borrower’s situation, including the desired amortization schedule.
Many of the larger, traditional lenders (like banks) have their own rates and minimum borrowing amounts.
Usually around $500,000, although some have their own rates with a lower limit of $1 million.
Maximum amounts can be as high as $40 million.
Can I get a commercial mortgage for an agricultural property?
Both farm mortgages and acreage mortgages are widely available throughout Canada, and are designed to furnish the country’s many farmers with affordable purchase alternatives, mortgage terms, and amortization schedules that suit their particular needs better than a standard.
How are construction mortgages different from commercial mortgages?
The commercial mortgage lending scene in Canada is home to several reputable lenders known for their robust mortgage offerings and customer-centric services. Among the top lenders are major banks such as RBC Royal Bank, TD Bank, and Bank of Montreal.
Credit unions also constitute a significant portion of the lending landscape, with institutions like Meridian Credit Union and Alterna Savings being notable players.
Moreover, private Borrowers and mortgage investment corporations provide alternative financing solutions, often catering to borrowers with unique needs or those unable to secure financing from traditional borrowers.
Each of these borrowers brings a distinct approach to commercial mortgage lending, creating a dynamic and accessible commercial mortgage sector with varied amortization options in Canada.