Commercial mortgage
A commercial mortgage is a loan given to a business to buy a commercial property. BDC describes it as secured by the property, which serves as collateral. It can fund the building in a deal where real estate is bought with the business.
If the business owns its building and the buyer is buying both, ask whether the building is financed separately from the business’s equipment and receivables. The commercial mortgage is the loan that covers the building. The guide to financing a business acquisition shows how it sits beside the other funding.
How it works
BDC says the size of the down payment is closely related to the loan-to-value ratio, which caps a secured loan by the market value of the pledged asset. It adds that commercial property can be harder to liquidate, and that commercial mortgages generally have lower loan-to-value ratios than residential mortgages, so a bank will likely expect the down payment to be a higher proportion of the property value. See loan-to-value ratio.
What to ask
- Whether the property is being bought or leased.
- Whether the lender will finance the property and the business together or separately.
- How the lender values the property.
- How and where the mortgage will be registered against the property.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentWhat is a commercial mortgage?
- 02Business Development Bank of CanadaGovernmentCommercial Real Estate financing and construction financing
- 03Business Development Bank of CanadaGovernmentWhat is collateral?
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