Commercial Financing

A Commercial Mortgage is a financial arrangement where a loan is secured against commercial real estate, distinguishing it from residential mortgages. The borrower is typically a company or business entity, such as a partnership, limited company, or corporation. The complexity of assessing credit history increases in this context, making commercial mortgage rates notably higher than residential rates due to heightened risk.

Distinct types of properties fall under the category of commercial properties, including development land, industrial spaces, offices, retail establishments, and multi-family residential.  These also include condominium units regardless of their size; if they’re zoned commercial, they require Commercial Financing.

Unlike residential mortgages, which usually take around 90 days to close, commercial mortgages have a significantly longer processing time, ranging from 60 days to a year.

Diverse types of commercial mortgages exist, each with its maximum loan-to-value ratio:

  • Storefront with Apartments/Residential Commercial (Mixed): 80%
  • Multi-family residential (1-4 units): 75%
  • Multi-family residential (5 or more units): 75%
  • Commercial plaza mortgage: 75%
  • Office mortgage: 75%
  • Industrial mortgage: 75%
  • Farmland mortgage: 55%

Comparing commercial mortgage rates can be challenging due to unadvertised lending criteria and varying terms and conditions. Engaging an experienced mortgage broker familiar with the commercial landscape, like Mathew at, who has over 20 years of lending experience, is recommended. A commercial mortgage broker specializes in asset classes above and connects clients with lenders specializing in the required area.


To qualify for a commercial mortgage, specific criteria is required including; 

  • high debt service coverage ratio 
  • favorable personal credit score,  
  • profitable and stable business 
  • detailed business plan, and 
  • financial statement – minimum 3 years – notice to reader 

The type of business and property, a substantial down payment ranging from 20-35%, and a liquid net worth (not in equity) is also a crucial factor.

Commercial property insurance is more intricate than residential insurance, with institutions like CMHC typically not insuring pure commercial properties. However, they may provide insurance for mixed residential-commercial properties with a down payment as low as 15%. Commercial mortgage insurance is essential for lenders seeking security, considering the increased risk of business-related challenges leading to defaults.

When utilizing a mortgage broker to secure competitive rates, clients should be aware of broker fees, which can range from the high four to high five digits depending on the deal’s size and complexity.

Benefits of Commercial Finance:

  • Enhances cash flow: Many small and medium-sized enterprises face challenges in cash flow due to unpredictable revenue streams. Commercial financing provides the essential injection of funds to meet payroll obligations, invest in new equipment, and cover various expenses.
  • Preserves business ownership: Unlike raising funds through equity, which may entail future ownership challenges, utilizing commercial financing allows you to maintain control of the business. This safeguards against investors seeking to exert control or take over the business.
  • Access to substantial capital: Commercial financing enables small businesses to address startup expenses with a single loan, simplifying the process of obtaining a significant amount of capital. This is particularly advantageous for businesses with limited resources.
  • No need for collateral: Certain commercial financing options, especially short-term ones, do not necessitate collateral. This simplifies the capital acquisition process for small businesses, allowing them to access the funds needed for growth.

Drawbacks of Commercial Finance:

  • Extensive paperwork: A notable challenge associated with commercial financing is the requirement for extensive paperwork. Lenders typically evaluate a company’s ability to repay the loan, leading to requests for detailed documentation. This may include submitting two or three years of tax returns, accounts receivable, financial statements, accounts payable records, credit history, and a concise presentation of business goals and objectives. Thorough research on the necessary documents and preparation is essential before selecting a commercial financing option.

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