How to Get a Mortgage Loan for a Commercial Property

Securing a mortgage for a commercial property is different from a residential mortgage.The stakes are higher, the terms can be more complex, and the requirements more stringent. If you’re looking to purchase commercial real estate in Canada, Shelto Mortgage.  Brokerage is here to guide you through the process, step by step.

Step 1: Define Your Purpose
First, define the purpose of the commercial property.

1.1 Office Space: For businesses needing space for operations.

1.2 Retail: Spaces for businesses selling goods.

1.3 Industrial: Warehouses or manufacturing plants.

1.4 Mixed-Use: Combines residential, commercial, and/or industrial purposes.

Step 2: Understand the Basics of Commercial Mortgages
Commercial mortgages differ significantly from their residential counterparts.

2.1 Duration: Typically shorter than residential mortgages, often between 5 to 20 years.

2.2 Interest Rates: Can be higher due to perceived risks.

2.3 Down Payment: Often larger; around 25% to 35% of the property’s value.

Step 3: Prepare a Solid Business Plan
Lenders need assurance that your commercial venture will be successful.

3.1 Revenue Projections: Detail expected income over the next few years.

3.2 Business Credibility: Highlight past successes or experiences in similar ventures.

3.3 Purpose of Property: Clearly explain how the property will benefit your business.

Step 4: Evaluate Your Financial Health
Lenders scrutinize financial health when considering loan approvals.

4.1 Credit Score: A good business credit score can be advantageous.

4.2 Debt Service Coverage Ratio (DSCR): It measures the cash a business generates to service its debt. Lenders often look for a DSCR above 1.25.

4.3 Liquidity: Showcase any liquid assets to bolster your application.

Step 5: Assemble Required Documentation
Have all necessary documents readily available.

 5.1 Business Financial Statements: Typically, for the past 3 years.

5.2 Personal Financial Information: Of all major stakeholders.

5.3 Property Details: Appraisals, land surveys, environmental studies, and other relevant

Step 6: Consider a Commercial Mortgage Broker
Just like residential mortgages, a broker can guide you to the best deals.

6.1 Expertise: They understand the Canadian commercial property market intricacies.

6.2 Access: Brokers have connections with multiple lenders and can negotiate favorable terms.

Step 7: Compare Various Lenders
Different lenders have varying criteria and offers.

7.1 Traditional Banks: Offer stability but might have stricter requirements.

7.2 Private Lenders: More flexible but may come with higher interest rates.

7.3 Mortgage Companies: Like Shelto, specialize in both residential and commercial mortgages, often offering a balanced approach.

Step 8: Understand the Costs Involved
Beyond the property’s price, several additional costs can arise.

8.1 Appraisal Fees:  Commercial appraisals can be pricier than residential ones.

8.2 Environmental Assessment: Especially important for industrial properties.

8.3 Legal Fees: Commercial transactions often require more legal oversight.

Step 9: Lock in Your Interest Rate
Rates can be volatile; locking in can provide stability.

9.1 Fixed Rate: The rate remains consistent throughout the loan term.

9.2 Variable Rate: It can change based on market conditions.

Step 10: Perform Due Diligence on the Property
Before finalizing, ensure the property has been thoroughly vetted.

10.1 Inspections: Assess the building’s condition and any required repairs.

10.2 Zoning Laws: Ensure the property’s zoning matches your business intentions.

10.3 Title Search: Confirm the property’s legal status and any liens against it.

Step 11: Finalize Your Loan Agreement
After approval, go through the details meticulously.

11.1 Terms and Conditions: Understand your responsibilities and the lender’s expectations.

11.2 Prepayment Options: Some commercial mortgages may have penalties for early repayment.

Step 12: Close the Deal
With everything in order, it’s time to finalize the purchase.

12.1 Legal Closing: This will involve your attorney, ensuring all documentation is correct.

12.2 Down Payment: Be prepared to pay the down payment and any closing costs.

12.3 Collect the Keys: Congratulations! You’re now the owner of a commercial property.

Securing a mortgage for a commercial property in Canada can seem daunting. However, with careful planning, understanding the intricacies involved, and partnering with trusted mortgage experts like Shelto Mortgage Brokerage, your path to owning commercial real estate can be smooth and successful. Remember, every commercial  venture is a step toward greater business growth. Make yours count

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