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Commercial Mortgages in Ontario

There are two primary types of mortgages, commercial mortgages, and residential mortgages. Commercial mortgages are registered on properties that are used by businesses and residential mortgages are registered to homes and other non-income generating properties. Commercial mortgages are usually registered in the name of a business rather than the name of an individual. For commercial mortgages, assessing credit score and income is usually much more complex. Commercial mortgages are generally more expensive and more difficult to qualify for than residential mortgages.

What types of properties are classified as commercial?

Generally, any property that is used by a business to generate income is considered to be a commercial property. This can include the building where the business operates, large residential complexes, and raw land. The following buildings are all examples of commercial properties:

  • Apartment Buildings and Other Multifamily Residences
  • Offices
  • Shopping Malls, Plazas, and Stores
  • Parking Lots
  • Farmland
  • Storage Facilities
  • Sports Arenas
  • Parks for Mobile Homes
  • Industrial Facilities
  • Restaurants

Aside from these properties, many other properties can be classified as commercial. Rates and fees for a commercial mortgage can vary greatly depending on the type of property. An experienced commercial mortgage broker can help explain what rates and fees you are likely to pay as well as which lenders are likely to approve the mortgage. This means that it is very hard to predict exactly how long it takes for a commercial mortgage to close.

Commercial Mortgage Timeline

Mortgages for residential properties can usually be arranged in around 90 days with a bank or as little as 10 days with a private lender. The work the lender needs to do on a commercial mortgage is much more than with a typical residential mortgage. The lender must check in depth both the abilities of the company to make payments and the potential profitability or utility of the commercial building.

Approval Criteria

Most commercial mortgages have approval criteria that are not applicable to residential mortgages. The requirements are very strict, as most commercial mortgages deal with large amounts of money.

  • Debt Service Ratio: The most important factor for a lender is the borrower’s ability to make mortgage payments.  This ratio is equal to the company’s Net Operating Income divided by its Total Debt Service. This ratio shows how much money a company makes for every dollar in principal and interest owed.
  • Credit Score: Lenders will require credit reports for the individuals that manage the company as well as the company itself. Lenders will need for everyone applying for the mortgage to have good credit in most cases.
  • Stability of the Business: Lenders will need to see evidence that the business is currently operating and that it is successful. Lenders will need to see the company’s business plan and current financial records to ensure that you can afford the mortgage. Some commercial lenders will not approve a mortgage unless the company has a net worth of at least $100,000 to $200,000.
  • Nature of the Business: Some lenders specialize in certain industries or will outright reject mortgages for certain controversial industries. For example, a legal marijuana company in Canada will be turned down by the majority of lenders.
  • Down Payment: Down payment requirements for commercial mortgages are usually higher than those for residential mortgages. Lenders require down payments between 20% and 40% for commercial properties. The riskier the mortgage is, the greater the down-payment will need to be.

How a Mortgage Broker Can Help

Trying to find the mortgage needed for your business needs can be a very stressful experience. Finding a commercial lender can be very time consuming and frustrating. A licensed mortgage broker can greatly simplify the entire process of getting a commercial mortgage. A mortgage broker can quickly analyze your situation and determine your chances of getting a private mortgage. The broker can also advise which lender is most suitable for your situation. Banks tend to service the lower risk mortgages while trust companies and private lenders service the high-risk mortgages.

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