Commercial Mortgages Alberta | Commercial Refinance Alberta

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A commercial mortgage is comparable to a residential mortgage in concept, except that it is used to purchase a property (or raise funds for commercial reasons), rather than for domestic purposes. As with residential mortgages, the lender retains ownership of the property until the debt is fully repaid.

What would you do with a commercial mortgage?

A commercial mortgage can be used to purchase anything from hotels, restaurants and stores, to office buildings, factories, warehouses and farms. If the business and property are inextricably related (such as a hotel or restaurant), consumers may purchase both at the same time. When a property is purchased as a company location, the mortgage is referred to as a commercial “owner-occupier” mortgage.

A commercial mortgage can also be utilized for refinancing. People may choose to release capital from their existing business property in order to expand or develop their premises or facilities, or simply to raise funds for any other commercial purpose.

A commercial mortgage can also be used for other purposes, such as “buy-to-let” mortgages (people buy a property such as residential for investment purposes, then rent it out), or commercial “development” mortgages, in which people buy a property to develop and then sell it for a profit.

Why should you buy instead of rent?

Taking on a commercial mortgage is a significant step for your company and should be carefully studied before investing. But it can ultimately be a fantastic investment. Owning the business premises that you occupy can provide numerous benefits to your company:

  • In most cases, the loan proceeds are not considered taxable income. Also, the interest payments are tax-deductible.
  • You’ll have a clear repayment plan with terms and rates tailored to your specific circumstances. As such, you’ll be able to manage your financial flow better.
  • Mortgage payments may be less expensive than rent.
  • Any real estate acquisition is an investment. Your asset’s value could rise dramatically, thereby increasing your capital.
  • Subletting allows you to earn money. For example, if you have extra space on your property which you don’t need right now, you could make money by renting it out to another firm until you need it to expand.

How to use a commercial mortgage for raising capital

If you already own commercial property and require cash for your business for any reason, accessing the capital in your property through refinancing or remortgaging are viable options. Consider it a loan that can be utilized for any business purpose, not just expanding or renovating your facilities. 

There are numerous advantages to doing so, which include:

  • Commercial mortgages are typically easier than business loans, particularly for small enterprises, because the property serves as collateral for the lender.
  • Commercial mortgages have an extended repayment term of 15 to 20 years, unlike many business loans with a short repayment duration, depending on the lender and your company’s financial situation.

The loan proceeds are not considered taxable income in most cases, and the interest payments are tax-deductible.

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What are the costs and repayment options for commercial mortgages?

Repayment plans are typically identical to those seen in home mortgages. Fixed-rate or variable rate repayment mortgages, as well as interest-only/endowment mortgages, are the main optiocommercial mortgagesns.

Commercial mortgage interest rates tend to be higher than residential mortgage interest rates, since business lending is seen as riskier. Rates will vary according to your company’s conditions; in general, the larger the risk, the higher the interest rate. For the same reason, repayment terms are often shorter than those of residential mortgages, ranging from 15-20 years.

Most lenders will not provide 100 percent loan-to-value mortgages, which means they will not provide a mortgage for the full purchase price. They will expect a down payment from you as a form of security (typically 20-30% of the purchase price, although some lenders accept as little as 5% with a higher interest rate for repayment).

Other costs to consider are legal expenses, surveys and broker fees, as well as the cost of obtaining a company mortgage.

The type of business determines who is responsible for repaying the mortgage. If you are a sole proprietor, you will bear sole liability. You may be personally liable if you fail to make payments, which means you may lose personal assets and the commercial property that is mortgaged. If you’re in a partnership, all partners share obligation and accountability. If it’s a limited corporation, the company’s obligation and liability are shared, yet personal security may be necessary to authorize the mortgage, depending on the firm’s viability.

How to get a commercial mortgage

When applying for a commercial mortgage, you’ll need to do your research and create a compelling business case to demonstrate your company’s ability to repay the loan. Prepare to have your finances thoroughly examined, including:

Your company’s business history. Future estimates for your company including financial statements, profit and loss accounts, balance sheets, previous and current cash flow — all certified by an accountant stating long-term company plan, intended land use, revenue potential and projected cash flow.

Personal finances. The financial history of yourself and all other significant stakeholders in the company, such as creditworthiness and prior earnings.

These criteria will influence the lender’s perceived level of risk in lending you the money, which will affect the length and interest rate of the loan they’re willing to offer you.

Many customers who apply for a commercial mortgage make the logical step of approaching their bank or business lender, with whom they already have a relationship. However, because of this association already, it is unlikely that you’ll obtain a competitive offer.

The best method to obtain a business mortgage is to work with a specialized independent mortgage broker to help you find an excellent package that meets your demands, regardless of your circumstances. Even if your credit isn’t perfect, that doesn’t mean you won’t be able to get a commercial mortgage. Having a broker represent you will significantly improve the strength of your argument. They have access to a wide choice of lenders and are familiar with their lending standards as well as your needs.

As a result, brokers can conduct a more targeted search, enhancing your chances of obtaining a suitable loan. The broker may be able to gather several alternative possibilities from multiple interested lenders, allowing you to negotiate a great price.

You’ll save more than just money. Consider the time it would take to complete all of the applications, as well as the time wasted in applying to several unsuitable lenders if you tried on your own.

Call Amansad Financial today at 780-756-1119 and speak with one of our experienced specialists to learn more about commercial mortgages, whether as a buyer or seller.