Commerical Loans

 

  Qualification criteria

If you choose to pursue a commercial mortgage, there are specific criteria that you will have to satisfy. The bar is set quite high as the value of loans is considerably higher.

  • 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. ( Check this)
  • 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.
  • Down payment. 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.

Types of Commercial Mortgages

TypeMax-Loan-to-Value RatioStorefront with Apartments/ Residential Commercial (Mixed) Individuals80%Multi-family residential (1-4 units)See Investment PropertyMulti-family residential (5 or more units)85%Commercial plaza mortgage75%Office mortgage75%Industrial mortgage75%Farm land mortgage55%Construction projectN/A-- 

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 is business isn’t going well and default. So, lenders need the security in the form of insurance.

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