How to get a mortgage for your commercial building

how-to-get-a-mortgage-for-commercial-building

Key stages of getting a commercial building mortgage

Because it isn’t always straightforward for small businesses to obtain mortgage financing, private lenders offer several solutions that can help finance their purchase of a commercial building.

An SME may prefer to own its work premises to avoid being subject to another owner, burdensome lease conditions or the possibility of the lease not being renewed. Also, by owning its own building, the business will own all the leasehold improvements it invests in. And let’s face it, being a master of your own destiny is one of the main incentives for becoming an entrepreneur! However, unless the SME has access to significant liquidity, an entrepreneur who wants to set up a commercial building will have to obtain mortgage financing.

Commercial mortgage loans differ greatly from those offered to individuals for a residential property. Businesses wanting to own and occupy a building may face several obstacles when applying for a conventional loan from a large bank or credit union.

The disadvantages of getting a commercial mortgage from a conventional bank

Harder to access and less advantageous than a residential mortgage

Quebec’s major banks and Desjardins are large organizations that hold considerable power. In real terms, this means they often set the rules of the game. Companies must therefore expect to pay higher interest rates than residential loans and accept loan terms that are constrictive and sometimes even harmful to their growth. For instance, the renewal of a commercial mortgage loan may be conditional upon the business submitting audited financial statements and obtaining positive financial results.

Financial institutions often turn their backs on whole industries and young SMEs

When large financial institutions decide it’s beneficial to avoid certain industries, there is nothing that forces them to do business with companies from those industries. For that reason, entrepreneurs in some sectors, particularly cannabis cultivation and foodservice, face a lot of refusals from banks when trying to get financing for a building.

Very young SMEs and start-ups also often find that traditional lenders are not interested in them because their revenue history is too recent or because of insufficient profitability.

Banks show little flexibility about businesses’ needs and develop restrictive criteria

Things get even more complicated when, for tax or other purposes, the company’s operational division is separate from the one owning the commercial building (company and main brand on the one hand and a Quebec incorporated company on the other).

In short, major financial institutions have the upper hand, and there isn’t enough competition between them to incite them to create an appropriate offering for all businesses. They are even less motivated to offer services that are adapted to the specifics of each entrepreneurial project and its fiscal structure. 

The benefits of commercial mortgage financing from a private lender

Because private mortgage lenders are not burdened by heavy bureaucracy and face greater competition, they are more flexible and more willing to work with the entrepreneurs cast aside by the big banks.

What follows are the main advantages of getting private mortgage financing to buy a commercial property.

Solvency requirements are less strict with a private lender 

It can happen that your company is going to get a no on mortgage financing before you even set foot in the banking adviser’s office. And in fact, that advisor often has little control over whether or not your request will be accepted. If, for some reason, your application doesn’t match the financial institution’s computerized analysis grid, the likelihood that an employee at your branch can do anything about it is very slim.

When private lenders receive a request for a loan to purchase a commercial building, they look at the real value of the building that will be mortgaged. Yes, solvency is still a significant criterion, but this type of financing considers a multitude of factors, which are often more relevant and tangible than those of the big banks.

Unlike traditional lenders, a private mortgage lender will take time to carefully and thoughtfully analyze all the risk factors in a project to estimate its real potential for success.

A lender-borrower relationship based on concrete factors

Like you, the private lender is an entrepreneur and an investor. The private lender’s mission is mainly to recognize projects that have potential so they can contribute financially to them.

Like you, the private lender is a risk-taker. They’re not there just to do data entry, fill out forms and demand endless documents. In a way, the relationship between a private lender and a borrower is akin to one of the business partners.

Just like you, the private lender knows time is money. It has nothing to gain in making you wait as the larger banks will often do. The private lender’s analysis is comprehensive, efficient and diligent.

Flexible terms and conditions for a win-win mortgage solution

Let’s face it: the financial statements of a major bank or Desjardins won’t be impacted if your entrepreneurial project fails. But the private lender, on the other hand, only does business with a limited number of borrowers, so it has every interest in your company achieving its goals by purchasing a commercial building.

This is why getting mortgage financing from a private investor can offer terms for the payment of the interest and the repayment of capital that are adapted to your company’s needs and situation.

Takeaways

Despite their many shortcomings, institutional lenders can still meet the needs of some companies. But if your business falls outside the box, or if you’re looking for commercial mortgage financing custom-designed and based on tangible aspects, then a private lender will generally offer more interesting solutions.

Private mortgage when buying a house: an option worth considering

Buying a house with a private mortgage: Uncover your options

Buying a house can be a very exciting process. But it can also be a hard goal to reach when you’ve had financial issues and banks have turned you away because of debt.

Fortunately, private lenders offer an alternative source of financing that can be very useful for home buyers. 

How do private lenders work?

They’re businesses or individuals that have significant funds available and extensive experience in creating quick, simple and flexible financing solutions. 

When , turning to a private lender is a completely viable way of funding projects like buying a house. For their protection, these lenders usually offer first mortgage or second mortgage loans on your existing property.

Banks vs. private lenders

A private mortgage is different from a bank mortgage. 

Before lending you money, banks will look at what down payment you can make and examine your debt ratio, assets and liabilities, annual income and credit history.

These requirements often discriminate against people with a less-than-spotless financial record.

Private lenders on the other hand may not even look at these things and will show much more flexibility. For instance, they may calculate the amount of your loan based solely on the purchase price, and they can offer you terms that banks won’t. 

How private lenders can help you buy a house

Private lenders start by reviewing your plan. They will invest their money in exchange for interest on the loan, ranging between 12% and 15%, depending on the situation. This interest rate may seem high compared to what banks offer, but private lenders are considered a temporary and transitional option. And the cost is definitely worth it in most cases. 

Once you get the go-ahead for your purchasing plan, a notarized contract between you and your private lender will be drawn up. Under normal circumstances, private lenders offer loans for up to 75% of the home or building’s market value, with terms of 3 to 36 months. 

As with any loan, it’s critical that you discuss the conditions from the very start: how the interest will be paid back, what the terms are in the event a payment is missed, whether you can repay early, etc. 

When to consider private lenders for a home purchase 

Private lenders are useful in specific situations like the following: 

Your credit rating is bad

Before banks decide whether to lend you money to buy a house, they will analyze your . Private lenders won’t. Instead, they’ll look at the market value of the property you’re mortgaging.   

You are considered too high-risk

Banks can refuse to finance the purchase of a home if they feel you pose a high level of risk, if your borrowing capacity is too low or if you don’t have enough cash. 

Private lenders can let you move forward with your plan to buy a house even when these aspects of your financial situation are not favourable, because they base their decision in part on the mortgaged property’s market value. 

You want to flip a property

Real estate flips are increasingly popular with investors. But banks don’t like them, especially when the person asking for the loan is doing their first flip.

For real estate investors wanting to flip a property, the problem isn’t always their credit history but their maximum borrowing capacity. However, private lenders are open to financing projects that have been refused by banks. 

Another thing to consider is that a bank mortgage entails a long, formal process. But getting money from a private lender to buy a property for flipping is quick. That makes it easier for you to jump on an opportunity before it disappears from the market.   

Other situations when private lenders offer an advantage

Here are other situations where private lenders may be beneficial in financing the purchase of a house:

  • You’ve had a bankruptcy
  • You don’t have enough income but do have a down payment
  • You are
  • You want to buy a nonconventional property that banks refused to finance

In all cases, the minimum down payment is 25% of the purchase price.

Private lenders help make house purchases a reality

Private lenders offer flexible loan conditions and rapid financing. If the banks have refused to approve your loan request to buy a house, you may want to consider private lenders—a completely valid alternative solution. 

Your private lender will do everything in their power to help you buy your house. Why not contact a private lender now to talk about your plans and get answers to your questions?

You can also fill out our Online Financing Application Form. We’ll let you know within 24 hours whether you meet the conditions to get a mortgage from us.