A commercial mortgage is typically for business owners who are looking to take out a loan on a commercial real estate project with the property as collateral. A business, whether incorporated, a partnership, or a limited company, is usually borrowing the loan in this scenario. These types of mortgages have a more complicated assessment and have significantly higher rates due to the increased risk nature of the project.
Properties that Qualify for Commercial Mortgages in Canada
Before going through with a commercial loan, it is necessary to ensure that your property qualifies as a commercial property. There are three different categories of commercial properties.
- 1-4 unit residential
- Five+ unit residential
- Residential and commercial mixed
Additional properties that you can finance with a commercial mortgage include office space, retail building, or industrial property.
Commercial Mortgages Rates
Constructing a commercial space is typically a much more expensive project than residential construction. As a result of this, rates for a commercial mortgage are much higher than those you’ll see with a residential mortgage. The percentage you’ll receive varies on the scale of the project and the type of loan you choose. Usually, you can expect rates to range anywhere from 5-30%.
How to Qualify for a Commercial Mortgage
Due to the risks involved in commercial projects, the criteria that must be met to qualify for a business loan is quite strict.
- Ensure you have cash available to meet the loan payments. Lenders will apply a loan-to-value rate and will expect buyers to back the project with their funds.
- Have a good personal credit score. To prove that your business is creditworthy, you must have a good credit score history.
- Provide a business plan. To prove that you can make the mortgage payments, lenders often require a business plan as proof of profits or that profits will be made.
- Type of business. The type of business you choose to run also factors into the commercial mortgage.
- Make the down payment. The higher the risk, the higher the initial down payment. For most commercial properties, expect to pay between 20-35%.
FAQs
The current business loan interest rates in Canada range anywhere between 5-30%. The higher the risk of the project, the higher the interest rate.
A commercial mortgage loan is for business owners looking to construct a new property such as a retail space, office or residential property.
Commercial mortgages work similar to your typical residential mortgage, except with more strict criteria. You’ll meet with a lender to discuss the specifics of the project, such as scale and projected profits, and you’ll come to a rate agreement.
Commercial mortgages in Ontario are one of our specialties here at Mortgage Residence. Give us a call today to receive the best commercial mortgage rates in Canada. We will help your business grow with a business loan for your commercial project!