Financing a commercial mortgage in Calgary is considerably more complex than obtaining a residential mortgage. Find out what out what you need to know on the basics of financing a commercial mortgage.
You should first know that there is a huge variety of different types of commercial properties ranging from apartment buildings, commercial office buildings, industrial buildings, just to name a few so the type of commercial property being purchased is something that will have a direct impact on the criteria a commercial lender will use when it comes to the application process and how they will assess the loan.
Understand your Reason for Purchasing a Commercial Property
You must be very clear on your reason for purchasing the property as it will have a strong impact on the overall mortgage proposal and how your loan application will be accessed by a lender. Some specific reasons for purchasing a commercial property could include:
- Owner occupied business relocation
- Investment purposes
- Rental income and long term capital appreciation
Preparing for the Offer to Purchase and Mortgage Application
You would be best advised to use the services of an experienced commercial broker instead of approaching a lender right at the outset. A broker will have more detailed knowledge of what a lender will require especially when it comes to ensuring all the conditions have been met with the offer of purchase.
The broker can also assist and advise on the all the documentation you will require and provide you with information on all the additional lender, third party or closing costs entailed.
Additional information will be needed for other appropriate applicable documentation such as rental income or cash flow, debt servicing and other applicable loan covenants.
Commercial Mortgage Application Process
The commercial application process entails a very extensive due diligent process on the part of the lender because there is generally more risk involved when it comes to commercial loans.
This due diligent process can last anywhere from around 30 days to as long as 90 days. The bank will also require a property evaluation and may require an environmental assessment.
In any event you may expect delays from the lender due to a variety of reasons. So this is one reason that you must allow sufficient time for the finance date when completing the offer of purchase to allow the lender adequate time to complete their due diligence during the commercial mortgage application process.
Information Required by Commercial Lenders
Some of the information you will be required to present to a lender to obtain financing when buying a commercial property in Calgary could include some or all of the following:
- MLS listing for the property plus the Offer to Purchase
- A description and the type of commercial property you propose to purchase
- If the property is to be owner occupied you will also have to provide any relevant financial statements about your business.
- 2-3 years of financial statement information
- Property survey certificate
- Your person statement of net worth and will have to include all your personal assets and your current liabilities
- Recent appraisal and environmental assessment reports that were performed on the property
- All outstanding mortgage statements relevant to the property
Cash Flow Statements
The lender will need to understand your cash flow criteria and you will need to understand their criteria as it relates to your ability to manage the debt relative to a commercial mortgage.
This is but a very brief overview of what is required to initiate the application process when buying a commercial property. There is considerably more involved than can be included in this article so are best advised to work with and use the services of an independent commercial mortgage broker to help steer you through the application process.
Photo by JSM
