Private Mortgage for Commercial Properties
What You Need To Know
A commercial mortgage loan in Canada is used when an individual needs to buy a property that is not for residential. Similar to residential mortgages on a home, a commercial mortgage loan can come in the form of a first, second, or third mortgage.
At Canadian Private Mortgage, our clients know that we won’t steer them into any products or financial terms that don’t fit their personal goals.
Our private mortgage for residential properties is ideal for real estate investors who understand the benefits of income-generating properties and are not afraid to ask questions about what’s best for them.
Creative Financing For Commercial Properties
Eligible Properties for Commercial Mortgages
Commercial properties come in several different types.
- Industrial properties include warehouses, bulk storage, and flex spaces.
- Multifamily properties consist of five or more rental units. These properties usually generate rental income for the property owner.
- Other types of properties include strip malls and single-storefront buildings.
- Finally, multi-unit residential properties such as condominium buildings, cooperative buildings, and apartment complexes.
Financing Options for Commercial Properties
The process of obtaining financing for commercial properties with a private mortgage is much simpler than the process for traditional lenders. Although private lenders will still ask to verify some information to satisfy their internal lending guidelines, in general, it may actually be faster and easier.
Private lenders assess a mortgage loan application based on the allowable use according to the city by-law and its location in the neighbourhood. A property appraisal is certainly a requirement that borrowers will need to satisfy as part of the refinancing process.
Generally speaking, private lenders will allow higher loan-to-value (LTV) than traditional banks and lenders.
Class Differences in Classifying Commercial Properties
When analyzing commercial real estate, one should understand the distinctions between Class A, Class B, and Class C properties.
Class A and Class B Property
Class A properties are the most expensive, while Class B properties are considered to be more functional. Class A properties are also higher-quality than Class B buildings.
Class A buildings generally are newer and built within 15 years, but older buildings can be upgraded to Class A status by making extensive renovations.
The difference between Class A and Class B properties lies in the type of tenant they attract.
Class A properties are typically more desirable to tenants because they tend to have a higher income level. Class B properties, on the other hand, have lower income tenants, but offer higher growth potential.
Some Class B properties are even upgradeable to Class A if they perform well. And while Class A properties are viewed as the safest types of investments, they have the highest potential for capital appreciation.
Class C Property
Property in Class C is an excellent investment opportunity for investors because of the lower cost of acquisition and a high potential for cash flow.
The downside of Class C properties is that they may require more ongoing management and may have fewer financing options.
Class C investments are generally suited for property managers with a solid understanding of operations. However, these properties may not be right for investors with limited resources or operational expertise.
These properties can become lucrative investments for those with good operational experience to mitigate risks.
Commercial real estate loans are different from residential mortgages in that they are meant to fund commercial properties. In addition to the standard loan requirements, commercial real estate loans often require the borrower to form a business entity.
A business entity may be a corporation or a limited liability company. Often, business entities will have to provide individual principals with a personal guarantee to qualify for the loan. Minimum individual beacon scores range from 550 to 700, while business credit scores vary depending on the type of loan and credit reporting bureau.
Oftentimes, business owners do not have the financial history required by traditional lenders. In these cases, they may be asked to guarantee the loan as a personal guarantee. Then, as the owners and principals of the business, they must pay monthly installments of the loan.
In such a scenario, where a personal guarantee may not be sufficient to mitigate the risks, a joint venture may be a reasonable option.
Private lenders are an ideal option since they are not tied to the same lending guidelines as traditional lenders which is limiting. Unlike bank loans, private lenders focus more on the value of the property and cash flow potential from the commercial properties to determine the terms of the loan. This means that they will not make any preconditions on the borrower’s credit score or debt to income ratio.
A big advantage of hard money lending is that you can beat traditional lenders’ interest rates and timeframes. While traditional banks are known for their long loan terms, hard money loans can close in just days or weeks. This is important in large development projects, as time is money. Getting a commercial mortgage loan approved faster helps you complete the project faster and avoid delays.
Origination fee can also be referred to as “commitment fee”, or any other name. It usually refers to the underwriting or processing fee. This fee can cover a variety of expenses, from processing the loan to underwriting the loan. The amount of this fee depends on the lender and the type of mortgage loan. It is always stipulated in writing so there is no bad surprise to the borrowers on the closing day. If you are not sure how much you are paying for your origination fee, it is a sign that you are not working with an ethical private lender. Be aware and find other private lenders who are transparent with their origination fees.
At Canadian Private Mortgage, we disclose our commitment fee clearly in writing from the beginning of the process.
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What Our Clients Say
Andrea Chase, Hamilton, ON
I had 2 yrs left on my consumer proposal, with the 2nd mortgage offer by Matrix Mortgage Global I was able to pay off the proposal and re-establish my credit
Steve Darcy - Surrey, BC
I own a historic mixed use commercial/residential building that I wanted to modernize. Matrix Mortgage Global provided me with a term loan to complete the renovations
Blake Taylor - Banff, AB
I own a family bed and breakfast just outside Banff and ran into some tax arrears. Our bank turned us down for a commercial loan. Matrix Mortgage Global provided us with a 2nd mortgage which we used to pay off the tax arrears.
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