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 are a few things you need to know.

1. EVERYTHING YOU NEED TO KNOW
Commercial Mortgages
Frequently Asked Questions

2. Commercial Mortgage
What is a commercial
mortgage?
A LOAN THAT IS TO BE USED
SPECIFICALLY TO FUND COMMERCIAL
REAL ESTATE.
A secured mortgage loan for an office
building, warehouse, apartment building, or
a shopping center, is also referred to as a
commercial mortgage loan.
The borrower in the case of a commercial
mortgage is a company or business

3. Types of properties
Commercial
Mortgages
TYPES OF PROPERTIES
Properties that have a multi-purpose function are the only properties that are
considered commercial.
Residential real estate can be financed under a commercial mortgage if it is purchased
as an investment property.
This can fall into one of three categories.
Pure residential, 1-4 units
Pure residential, 5 or more units
Residential Commercial Mixed
Other properties that fall under a commercial mortgage are an office, retail or
industrial property.
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4. A standard commercial real estate loan from a bank or lender works
similarly to a home mortgage but with broader uses and shorter terms.
LONG-TERM FIXED-INTEREST COMMERCIAL MORTGAGE
Interest-only payment loans are geared toward businesses expecting a
large payout at a future date, rather than a steady monthly money stream
at the outset.
As with a home mortgage, business owners like to take advantage of
available lower interest rates through commercial real estate refinancing
loans.
There are additional fees and costs involved when refinancing, but they’re
usually minimal compared to overall savings through lower monthly
payments and less cumulative debt
INTEREST-ONLY PAYMENT LOAN
REFINANCE LOAN
Types of commercial loans

5. Hard money loans come exclusively from private investors who are
willing to take lending risks based on the value of the commercial
property itself, not the credit rating of the borrower.
HARD MONEY LOAN
A commercial real estate bridge loan is a softer version of a hard
loan with lower interest rates (6.5% to 9%), longer terms (up to
three years), and a short approval-to-funding wait (15 to 45 days).
Construction loans are taken out to cover the material and labor
costs of building structures like offices, retail fronts, industrial
facilities, multi-family rental units, and more.
LEARN ABOUT TRENDS
GET FAMILIAR WITH PRICE RANGES
Types of commercial loans

6. Commercial mortgages require certain
criteria to be met such as:
Your personal credit
score and your
business’ score will be
verified.
EXCELLENT CREDIT
HISTORY
This is the ratio of cash
on hand/available to
make the required loan
payments.
DEBT TO SERVICE
RATIO
This will determine if
you are better suited for
an industrial mortgage
instead of a commercial
one.
TYPE OF BUSINESS
YOU RUN
Unlike a residential
mortgage, your down
payment will need to be
between 20-35% and in
some cases 50%
depending on the size of
the property.
DOWN PAYMENT

7. Commercial Mortgage
How long does it
take to secure a
commercial
mortgage?
A commercial mortgage loan can take up to 6
months to get approved through a bank. A
mortgage broker can decrease the length of time it
takes to get approval.

8. Debt is repaid in regular installments over a period of time.
Longer amortization periods typically involve smaller
monthly payments and higher total interest costs over the
life of the loan, while shorter amortization periods generally
entail larger monthly payments and lower total interest
costs.
Refer to the period where the borrower will either decide to
sell the commercial property, refinance or pay off the
remaining balance to obtain complete ownership.
AMORTIZATION
BALLOON PAYMENTS
The Commercial
Mortgage Repayment
Structure

9. How to Get a ‘Yes’ on Your
Commercial Mortgage Loan
THERE ARE CAN BE MANY OBSTACLES TO OBTAINING
A COMMERCIAL MORTGAGE, WHETHER YOU’RE A STARTUP OR
AN ESTABLISHED BUSINESS LOOKING TO EXPAND. SO...

10. Obstacles to
Obtaining a
Commercial
Mortgage
Obtaining a commercial mortgage
Before submitting a request for a loan, know the pros and
cons.
Knowing the terms of the commercial mortgage can help
you make proper use of the loan and to create an
appropriate rating for the terms and conditions of your
business.
GET EDUCATED ON COMMERCIAL MORTGAGES
Have all your documents in order and be prepared to
state your case concisely.
This will show the loan officer that you’re professional
and take the process seriously.
If you’re unorganized, it could raise concerns about your
business’s or your plan’s viability.
STAY ORGANIZED
Explain why the features of a building, such as size and
number of floors are essential for your business and most
importantly, how it will help grow your bottom line.
Also, if the market price of the property offered is below
the market price, come up with strategies to raise it to
increase your returns.
BE CLEAR

11. Why Lenders
Reject
Commercial
Mortgage
Applications
Why Lenders Reject
BUSINESS PROPOSAL
For your business plan to be
accepted, they need to feel
that the plan firmly supports
the requested loan amount,
meaning they need to be
confident in your business
plan.
TAX RETURN
If they notice something
on your tax return that
violates the lending
policies of the bank, then
the bank’s loan officer will
deny your application.
TYPE OF BUSINESS
If the lender does not typically
deal with the type of business
that you are involved in, or may
demand special requirements
to qualify that may make it
impractical or infeasible for you
to take on the loan.
Many banks will refuse businesses
in the restaurant and bar industry,
and those who invest in auto-
service enterprises will usually be
expected to adhere to
environmental reporting
protocols that are very expensive
and excessive.

12. How to Lower Commercial Mortgage Interest
Rates: Finding the Best Financing Option
Where your business is located could easily make or break its name in the market, which is why prime real estate such
as storefronts along busy streets or large expanses of land quickly skyrocket in value.
For budding entrepreneurs, this can mean entering the race to finding the best terms for a commercial
mortgage.
Here’s a quick guide to the most common options you can choose from and what each
means for the financial health of your business:

13. While this could mean less cash flow to cover
immediate expenses or present growth ventures, a
lower loan-to-value ratio could lead to lower
interest rates and lesser mortgage payments overall
in the long run.
This also presents an opportunity for increased cash
flow as fewer capital expenditures going back to
mortgage payments would need to be made.
LOAN-TO-VALUE RATIO
For commercial transactions, lenders generally offer
to finance anywhere between 75% to 100% of the
value of the property you are looking to acquire.
The investment that a particular lender is willing to
make depends on the condition of the property and
resale value as these parameters indicate an
increase in the value of the asset over time, and
therefore, profitability.

14. Factors such as current position in the market,
assets, potential for growth and profit are examined
to determine if providing your business with a
commercial mortgage would benefit both you and
the lender.
To guarantee approval and maintain favorable
interest rates, it’s important to ensure that your
business is in good financial health, demonstrating
that expected cash flows can support mortgage
repayments.
PROPENSITY FOR RISK
One of the key factors that determine interest rates
of commercial mortgages is your propensity for risk
as the borrower.
Lenders will want to look at your credit rating and
serviceability to ensure that your business venture
will provide significant returns that will allow you to
make mortgage repayments.

15. On the other hand, variable rates are determined by
banks across Canada, and lenders will then base the
interest rate of your mortgage off these figures
while taking into account individual merits.
Variable interest rates come at a much higher risk,
depending on when your commercial mortgage
takes into effect with respect to market
fluctuations.
FIXED OR VARIABLE RATES
Commercial mortgage rates are either fixed or
variable—selecting the best option for your
business boils down to the conditions that
determine its financial health.
While a fixed rate protects your business from
surges in the market value of the property, this
could also mean paying the same interest rates
even when the market swings in your favor.

16. Compared to residential mortgages, interest rates for commercial mortgages are
understandably higher due to the sheer amount of investment that the lender has to
make in order to support a budding business venture. The challenge is to recoup these
capital expenses by exceeding profit margins.
On the upside, professional mortgage brokers and trusted lenders make it their
mission to help business owners like yourself.
Commercial Mortgages

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