Do you have a growing business, and you want to expand? Has the rate of renting become too expensive? If so, you might want to know that you can apply for a commercial mortgage to help finance your business expansion and reduce your rent expenses. Here’s everything you need to know about this type of loan.

What is a commercial mortgage?

Commercial mortgages, sometimes called business mortgages, are loans extended by financial institutions to businesses to acquire (or refinance) any property or land for business purposes. Just like the more common residential mortgage, money is loaned and secured against a property.

This loan process is very familiar to many businesses that have successfully grown and would want to use the loaned money to expand their business, set up a new workspace, or develop their property. By securing a business to a property such as an office building, a shopping center, an industrial warehouse, or an apartment complex, they tend to become the primary resource for financing any planned business expansion.

Commercial mortgages are well structured to meet the needs of both the lender and the borrower. The lender needs to see that their loan is secured, and the borrower wants to benefit through reduced repayments compared to paying rent.

A commercial property mortgage is usually amortized up to 20 years or more and repaid in regular installments. But typically, the mortgage lender will lend up to 70% of the property’s appraised value, which leaves you, the borrower, to find the rest of the remaining amount to complete the purchase. This is often a large amount of money to develop, but financial institutions do this because they see this loan as high-risk.

Advantages of Having a Long-Term Commercial Mortgage

A commercial mortgage does a lot more than just finding a place or a home for your business. This is generally viewed as your major source of business funding.

Having your business premises can also help reduce the risk of being exposed to increasing rental rates. A commercial mortgage can also help your business become future-proof by allowing it to gain equity as the property price increases over time.

There are a great number of advantages in choosing a long-term commercial mortgage, many of which seek to offer future sources of funding and finance, such as the following:

  • Consolidating business debts;
  • Buying of new equipment;
  • Releasing capital for investment or growth;
  • Trading expansion;
  • Option for leasing parts of the property to create additional income; and
  • Cheaper than renting

Business owners can also use a commercial mortgage to purchase a business property either for their business use, rent out, buy a company, or unlocking the equity within already owned buildings. This method has become a more flexible way of financing your property purchase as long as you have tangible assets to secure.

How can you apply for a commercial mortgage?

Finding the right commercial mortgage can take a lot of time and detailed research. Many lenders offer different varieties of this type of loan. One important thing to remember is that you should find a lender that meets your particular needs. Finding a credible and trusted mortgage broker can help you at this stage.

Before you start your search, though, you need to remember that there are certain documents that you need to provide for your application to be successful. Make sure that you have the following:

  • Business performance figures (both current and projected);
  • Bank statements
  • Statements of assets and liabilities;
  • The details and profiles of your partners or members of the board; and
  • Tax returns (for at least three years)

Mortgage rates can vary. Some lenders even offer mortgages only when there is plenty of asset security available, while others prefer to lend to owner-businesses or will only fund-land developments.

What are commercial mortgage terms?

Terms can vary dramatically. Some repayment plans are short-terms that can have three-year terms, while others long-term may offer repayment of up to 25 years. The average duration is around 15 years.

Repayment terms are often based on the size and value of the property. They can also be found on the available deposit you have, with many lenders offering commercial mortgages at a variable rate.

This is a big financial commitment, so you need to completely understand what you want from your commercial mortgage and what your lender wants. You also will need to watch out for complex clauses or directives where there are greater risks to the borrower. If you have any doubts or are unsure of your contract terms, ask your mortgage broker for help.

Loan repayment

Interest rates in commercial mortgages are typically higher than with residential mortgages, as the lending is deemed higher-risk. The lender will likely require you to offer a greater deposit of at least 30%, equating to a lower loan to value (LTV) rate, with the upside having greater equity.

Credit history

The borrower’s credit history will play an important part in whether or not their application for a commercial mortgage goes through. However, this is not always the only thing that is considered. A comprehensive picture of the borrower’s company which includes projections and their business plan can also play a big role in the application’s success.

Usage of the property

Commercial mortgages are not all the same. How a borrower chooses to use the property will affect both the amount that can be borrowed and its interest rate.

If the borrower buys an office block for business and then decides to redevelop and sub-let part of the space, the commercial mortgage would have gone from an owner-occupied company to investment business. In many cases, this will incur a drop in the borrower’s loan to value rate (LTV).


If your business is already generating regular income but still needs additional funding to grow, a commercial mortgage loan will be able to help you. If ever you will be qualified for this type of loan, you will need to determine what kind of commercial mortgage loan is right for your business-short-term or long-term. Short-term loans may help level cash flow, but larger, longer-term loans could allow you to grow for years to come.

Just like any financial decision, you need to carefully weigh in your business’s needs, your desire for growth, and the risks involved before applying for a commercial mortgage loan.

For More Information, Contact:

John (Adam) Watson, CEO, CanCap Mortgage Group Inc. 

Email:   Tel: 416-452-5281