Trying to secure a commercial mortgage in Ontario may be intimidating to some, but it doesn’t have to be. A commercial mortgage can help you to expand property, or finance a brand new property if you wish. A commercial mortgage can also be used to consolidate one’s debts. However, the criteria for obtaining a commercial mortgage are quite different from those required to obtain a residential mortgage. Here, we will focus on how you can secure a commercial mortgage loan in Canada.
What are commercial mortgages used for?
A commercial mortgage is a loan taken out on a commercial real estate property with the property in question serving as collateral. The borrower can be incorporated, a limited company, partnership, or conventional enterprise. A commercial mortgage loan can be taken out to finance a hotel, office, store, industrial property, construction site or residential real estate property but can also qualify if it is being used as an investment property.
What Lenders Look For
A commercial mortgage can only be used towards land that is zoned for commercial purposes or towards a commercial domicile. Furthermore, it is illegal to build a dwelling that is zoned for commercial purposes, so you will need to make sure that you meet these criteria.
The lenders will also want to know what your business is all about. They will want to know if it is profitable and if it is a stable company. They may even ask you to provide them with future growth projections and may ask to see a financial statement or even a written business plan.
Credit history will also affect their decision, so expect them to ask for your credit history as well as the credit history of your partners or affiliates. What’s more, they will also analyze the ratio of available funds to the required loan payment, which is referred to in the industry as the ‘service coverage’ ratio.
Your prospective lender will also evaluate the debt itself and also assess the loan to value ratio. The loan to value ratio refers to the value of the mortgage vis-a-vis the appraised value of the property being assessed. Generally speaking, the loan to value ratio for most commercial properties ranges from 55% to 75% while the loan to value ratio for most residential properties can exceed the 80% threshold.
The repayment structure for a commercial mortgage is also different from that of a residential mortgage because it involves the term of the loan — the amortization period — and a balloon payment; after which the person who borrowed the cash will either sell their property, refinance it, or pay off the balance due.
To learn more about how to secure a commercial mortgage loan in Canada, call Northwood Mortgages at 888-492-3690 or contact us here.