At Spark Financial Group, we make it easy for our customers to apply and get approved for a commercial mortgage.
A commercial mortgage in Canada is a mortgage loan given to the owner of a property that is not considered a residential home. It is often times one of the largest financial investments that an investor makes in their life. The lender has security that the loan will be paid back because they have your property as collateral. In some cases, you may be required to assign multiple properties as collateral to account for any shortcomings to available equity or your ability to qualify for the full amount that you require.
You can also expect commercial mortgage rates to be significantly higher than residential rates due to the increased risk.
At Spark Financial Group, we make it easy for our customers to apply and get approved for a commercial mortgage from as little as $50,000 to over $100,000,000.
Types of Properties
There are a number of properties that can be classified as commercial properties. It is important to identify exactly what type of property you are looking to finance. Residential real estate can be financed under a commercial mortgage if it is purchased as an investment property. This can fall into one of three categories:
- Pure residential: 1-4 units
- Pure residential: 5 or more units
- Residential Commercial Mixed
Residential mortgages usually take around 90 days to close, but could close as soon as 2 to 3 weeks. On the other hand, commercial mortgages take much longer and could take anywhere from 60 days up to a year.
|TYPE OF COMMERCIAL MORTGAGE||MAX LOAN-TO-VALUE RATIO|
|Storefront with apartments/residential commercial (mixed) individuals||80%|
|Multi-family residential (1-4 units)||Inquire|
|Multi-family residential (5+ units)||85%|
|Commercial plaza mortgage||75%|
|Farm land mortgage||55%|
At Spark Financial Group we deal with office, industrial, retail and rental apartment properties and can connect you to a number of lenders in the required area. A lender will assess the risk associated with the individual property.
For example, a mixed property could be one with a storefront but with 2- 3 floors of residential property above. The risk of a property increases if the business area of a property is greater than the residential area (in square feet). Commercial properties are generally considered to be riskier as repayment is dependent on how well the business does.
If you choose to pursue a commercial mortgage, there are specific criteria that you will have to satisfy and at Spark Financial Group we are here to help with that.
- Debt service coverage ratio. This is the main criterion that lenders will look at and is essentially the ratio of cash available to the required loan payments. Most lenders will apply a loan-to-value ratio and will expect you to invest some of your own money into the purchase to balance the odds.
- Credit History. Most lenders will require a good personal credit score as well as evidence that your business is creditworthy. There are lenders that may accept applicants with a less-than-perfect credit history, but they are few.
- Current business situation. If you’re business is up and running, commercial lenders expect your business to be profitable and steady. You may need to provide your business plan and financial projections to ensure that you will be able to make your payments on time. Some lenders may have a minimum net worth requirement of about 100 to 200K. Funds need to be liquid, not in equity so RRSP, cash, stocks etc.
- Type of business. The terms of a commercial mortgage are dependent on the type of business as well as the property you want to purchase. This can be quite a complex area so it is advisable to acquire a specialist, either a solicitor or chartered surveyor, to advise you.
- Downpayment. A higher down payment is expected of a commercial property. A typical down payment on a mixed property falls between 20- 35%. A pure commercial property is typically higher, near 50%. Your risk profile directly determines the down payment that is required of you.
Commercial Mortgage Insurance
Insurance for a commercial property is more complicated than with a residential property. For instance, CMHC won’t insure a pure commercial property. However, they may insure a mixed residential – commercial property with a down payment as low as 15%. With a personal residential property, the lender can be assured that the borrower will make mortgage payments a priority. However, with a commercial mortgage, it is easier for the borrower to declare bankruptcy if business isn’t going well and defaults. So, lenders need the security in the form of insurance.