Commercial mortgages are mid-term loans made using business or commercial real estate to secure payment. The proceeds from a commercial mortgage are typically used to acquire or redevelop commercial property.
You can also bridge the arrival of longer term financing from a conventional institutional lender or to provide time to value-enhance a project or property type prior to sale.
Commercial mortgage can also be used for the development or refinancing of an existing business, for example:
- expansion or refurbishment of a business property
- buying out a partner’s share of a business property
- current tenant purchasing the freehold of a business property
- consolidation of existing loans at a lower rate of interest
First and second commercial mortgages are available on all commercial buildings including multi-residential, retail, office, industrial, special purpose, land and construction properties across Canada. Typical Commercial properties considered are-
- commercial buildings
- hotels and motels
- new residential condominium construction
- retirement and nursing home facilities
- development lands
- apartment buildings
- automotive dealerships
- industrial buildings
- golf courses
- recreational resort properties
- plazas and shopping centers
- churches and temples
- parking lots
- multi-family residential
- recreation-vehicle parks
- private schools
- subdivision servicing
- builder inventory loans
- condominium conversion projects
- storage facilities
Commercial mortgages provide enhanced security of capital over most corporate debentures due to the collateralization of mortgages with tangible assets such as land and buildings. With Commercial deals, the borrower is generally a company or business as opposed to an individual and the business may be either a partnership, limited company or incorporated. Consequently, assessing credit history is more complicated with this type of mortgage. You can expect commercial mortgage rates to be higher than residential rates due to the increased risk.
The amount that financial institutions are normally prepared to lend as commercial mortgages depends on several factors including:
- value of the property
- size of deposit to be contributed by the mortgage applicant
- maximum loan to value (LTV) ratio that the lender will sanction for the type of property
The application process can be quite involved, more so than for a residential mortgage. On the outset, lenders generally need to know the following key elements-
Loan Amount: How much does the borrower need?
Source and Uses of Funds: How will the commercial loan be used? How much borrower equity is there? How will it be used?
Term: How long are the funds to be borrowed for?
Amortization: Will there be principal repayments or will the commercial loan be interest only?
Security: What is the security being offered? A full description of the land and buildings that includes all of the salient information, namely: location; size of lot; age of building(s); size of building(s) (net rentable area and gross floor area if available); type of building; uses; tenant mix; market factors; accessibility; type of construction; any special characteristics.
Borrower/Guarantor Details: Who are the Borrowers and or Guarantors? What experience do they bring to this project? Any prior relevant experience should be described in detail. Will there be enough income to pay the commercial mortgage payments? If not, is there a way to make the commercial loan work by including collateral security?
Exit Strategy: How will the commercial loan be repaid?
Understanding what the borrower needs and what will work best in the long run for all the parties involved means we have to conduct comprehensive due diligence that is sufficiently detailed to answer all questions that may arise. This will include a detailed review of borrower financial statements (2-3 years), as well as operating statements on the property (2-3 years). A timely turn around is dependent on getting the information assembled quickly.
Every commercial mortgage request we receive is unique and specific. Regardless of the scope of your venture, we will find the match between your demand and a lender’s criteria. Each commercial mortgage application we receive is treated with priority and handled uniquely. We know how important this business or investment opportunity is to you, and will take every measure to ensure your financing is provided on the best terms possible.