A business mortgage in Canada is possible as long as you have an active business in the country. You can use the money from the loan to buy commercial property and continue operating your business from there.
Of course, just like with any other loan, you also have to provide the right requirements. Owning commercial properties means you can have more freedom in how to use the place and more space to control your operations.
Businesses can get mortgages in Canada as long as the purpose is for commercial gain. You need to ensure that you will use the property for business and not as a residential mortgage. Always look at your financial goals and see where a commercial property would fit in.
What Is a Business Mortgage?
When you’re considering getting a business mortgage, you should be familiar with its types. There are two which you can choose from which are variable-rate then the closed and open mortgages.
Variable-rate mortgages have discounts making you pay less than the current fixed rates. When interest rates start rising, you might end up paying more, but when the rates lower, you get more savings. The good thing is that some lenders will allow the conversion of your variable-rate mortgage to a fixed-rate option.
The closed and open mortgages come next on the list. Closed mortgages are a popular option because they offer lower interest rates. You only have to make sure that you can pay the penalty in case you need to renegotiate the property loan terms.
Open rate mortgages on the other hand are good if you want to pay off your mortgage in a set period. You can pay off a part of your property loan without having to pay additional fees. In case you’re struggling to make payments, you can also convert the mortgage to another term with no penalty. The only downside is that you might be paying higher interest rates.
How to Qualify for a Business Mortgage in Canada
For you to get a business mortgage in Canada, you need to prepare for the requirements. You need to look for a lender that you want to transact with first. Read reviews about them and also send queries if possible.
Once you’ve chosen a lender, look at their terms and conditions to decide whether you pass the requirements or not. Usually, you send in your application for a property loan and the lender reviews your case. There are three major factors you have to possess to have an easy property loan application process and we’ve listed them down below.
- 1. Have a Good Credit RatingIt’s a common rule for many lenders to always look at your credit rating. Having a credit score of 700 or higher ensures that you are qualified for the property loan. Almost any type of lending company will approve of this kind of score.
Excellent credit scores like 700 and up will also open up more options such as private and bank loans. As long as you have a strong credit score, you won’t have trouble choosing a lender that you like.
For credit scores around 640 to 700, you are still considered part of the good credit rating line. However, some lenders prefer to set their minimal credit rating requirement at 680. It’s not the same for all lenders which is why you have to look at their terms and conditions first.
When you’re in the lower bar, you might want to consider building good credit ratings before looking for a business mortgage. Sometimes, if you have strong business credentials, lenders will overlook your slightly lower credit score and offer you a property loan.
- Prepare a Down PaymentDown payments will vary from one lender to another. You will have to discuss the down payment and how much you are willing to pay with your lender. Usually, the down payment will be about 5% of the purchase price of the property.
Many other factors could affect your total down payment. You should be looking at around 20% to 50% of the property’s total cost. What you’re borrowing is what’s known as the loan-to-value or LTV ratio. When you provide 40% of the property’s purchasing price, then the remaining 60% is your LTV.
The amount of cash flow that you have will also determine the down payment. You will need to represent your financial data to the lender and show them how much your business earns or is expected to earn.
Another factor to consider is the kind of business that you are running. Some businesses that have been on the market longer tend to have more stable financial health compared to new ones. If you have strong financial data, more lenders will be lenient.
- Possess a Steady IncomeAs mentioned above, the cash flow or income that you have in business will determine your qualification for a business mortgage. You will have to present your financial data to show lenders how you’ll be able to pay off your dues by the deadline.
There’s no need to meet all of the criteria to pass, as long as you can convince the lenders of your financial stability and capability to pay the property loan. You will also have to prepare yourself for the interest rate as it could change depending on the final deal.
If you’re unsure if you can afford the property loan payments, one of the best ways to check is through a mortgage calculator. You can also ask for help from mortgage brokers to help decide whether the business mortgage you want to take out is the best option for you.
Why Business Mortgage Can Help You
Every business has its ups and downs and sometimes you need to take risks and acquire new property. What you have to remember is that the terms and conditions of the loans you take should suit well with your financial capabilities.
For some, applying for a business mortgage can be challenging. A good mortgage broker will always make things easier for you. When you go for a business mortgage, you will eventually own the property which is better than spending on leases.
Monthly payments on a mortgage can be heavy on the budget but you would never have to worry about paying rent per month. Having your open commercial property can also increase its equity the more that you grow the business. Don’t hesitate to look for a local business mortgage in Canada that you can trust.