Are you looking to qualify for a commercial mortgage loan in Ontario? Commercial mortgages involve loans on commercial (business) real estate using the property as collateral. Borrowers are required to supply their business or company instead of a person.
The business may be a limited company, incorporated, or a partnership. With this type of mortgage, assessing credit history is complicated, and rates can be significantly higher than a residential rate because of the greater risk.
Qualification Criteria for Commercial Mortgages in Ontario
To obtain a commercial mortgage, you must satisfy the following criteria. The bar for securing this type of loan is set very high, however, as the value is higher.
Debt Service Coverage Ratios
Debt service coverage ratio is the primary criteria that lenders examine. It is the ratio of available cash to loan payments. Most institutions apply a loan-to-value ratio and expect owners to invest some of their money into their purchase. Down payments balance out the odds/risk.
You will need good personal credit scores in addition to evidence of a creditworthy business. Lenders may accept those with less-than-perfect credit histories. However, such cases are very few.
Larger down payments are required for commercial properties. Typical down payments on mixed properties are between 20%-35%. Pure commercial properties tend to be higher at 50%. The risk profile will be the direct determinant of the down payment required.
Your Current Business Situation
Commercial lenders expect the business to generate a steady and profitable cash flow if it is operational. You may need to show a business plan and financial projections to ensure payments are made on time.
Some lending institutions may require a minimum set net worth requirement of $100,000-$200,000. However, the money must be liquid, and not placed in equities like RRSPs or stocks.
Your terms on a commercial mortgage will depend on the business type and the property you intend to purchase. It can be complex, so we encourage hiring a specialist like a chartered surveyor or solicitor for advice.
Insurance for Commercial Property
Commercial property is more challenging than residential property to insure. The Canada Mortgage and Housing Corporation (CMHC) will avoid insuring pure commercial properties. Yet, they may decide to insure mixed residential-commercial properties with down payments of 15%.
Personal residential properties assure the lending institution that you will prioritize paying the mortgage. Yet, with commercial mortgages, declaring bankruptcy is easier for the borrower if the business is not profitable. Therefore, a lender will need security as a form of insurance.
Commercial Mortgage Solutions
Northwood Mortgage has 50 years of experience with commercial, industrial, and residential mortgages. We are the largest brokerage firm in the Greater Toronto Area. We provide various financing options for investing in your future.
Additionally, we provide opportunities to finance different-sized businesses ranging from factories, plazas, raw land, office buildings, apartment buildings, and institutional properties.
Services are extended to people who may typically be considered ineligible for loans, like those with low crediting ratings, with financial challenges, immigrants, and the self-employed.