Commercial mortgages aren’t just for the big guys.

When you hear the term “commercial mortgage,” images of CEOs in skyscrapers and big-time property developers come to mind, right? You’re not alone in that! Unless you’ve had to access commercial lending, then you’ve probably never had to consider what it actually means.

So you might be surprised to learn that not only commercial mortgages not just for corporations, but that you might actually be closer to commercial financing than you think!

What is a commercial mortgage?

A commercial mortgage is a loan taken out on commercial real estate - or real estate that’s primary function is to earn revenue as part of a business’s structure - with the property as collateral.

Unlike a residential mortgage, the commercial borrower is generally a company or business as opposed to an individual. Consequently, this can make assessing credit history more complicated with a commercial loan, as the histories of the business itself and the individual taking the loan must be assessed in many cases.

One of the other main differences between a commercial and residential mortgage is that in a commercial mortgage, the lender will do a much deeper analysis of the building itself. Rather than just assessing a property’s physical market value, the earning potential of a property as an asset to the business is also taken into account.

You can also expect commercial mortgage rates to be significantly higher than residential rates due to the increased risk, and down payment requirements tend to be 20% or more for the same reason.

Who needs a commercial mortgage?

Of course, commercial mortgages are perfect for the big business owners and CEOs we mentioned above, but there are so many more places where commercial loans are necessary and can help you grow your business in more ways than one!

• Small business owners

  • If you own a small business, you might consider a commercial mortgage to purchase property, of course. But larger purchases or expenses such as equipment, inventory or payroll could all be brought into the commercial lending space.

• Retail business owners

  • Even in this post-pandemic world, where almost everything is available online, many retail businesses still opt for (or requir) a brick-and-mortar location. Rather than leasing a space to build your product-based business or grow your new coffee shop, purchasing the right property could help provide you with security, peace of mind and an appreciating asset for your business.

• Real estate investors

  • Investing in real estate can be done with residential mortgages. If you are purchasing single-family or multi-family units up to 4 units, then a residential mortgage will be your best bet. But for properties with 5+ units a commercial mortgage is required since that property will be generating more than enough revenue to be considered a business.

• Professional services

  • Just like retail business, many professional services such as doctors, lawyers, accountants (and mortgage brokers) require (or even prefer) a physical location, and owning the property rather than leasing can be a great option for the business!

• Non-profit organizations

  • You might not think of a non-profit as requiring a mortgage ever, but many need physical spaces to operate! While the investment into a commercial property can be substantial, having a reliable and secure space that is an asset for the organization rather than being responsible for a lease each year could be a great option.

Is a commercial mortgage your next step?

Whether you are thinking about starting a business, adding value to your current one or starting to grow your real estate portfolio, then getting acquainted with the benefits of a commercial mortgage is a great idea. Though the idea of such a sizeable loan leveraged against your business can be scary, remember that the ability to build equity for your business, potential savings over renting, and the flexibility of accessing funds to carry you through the sometimes bumpy road of business ownership are all major advantages.

If you have questions about commercial lending or think you might be ready to start down the commercial path yourself, reach out! Our team is here to help you navigate the process and be sure that we find the perfect mortgage to help the next chapter of your business thrive!