Commercial Mortgages In Canada: A Complete Guide

Navigating commercial mortgages in Canada can be a game-changer for entrepreneurs looking to start a business or expand operations. These loans are designed specifically for purchasing, refinancing, or developing income-generating real estate. With flexible terms and competitive rates, commercial mortgages offer tailored solutions for everything from office buildings to retail spaces. This guide will walk you through how commercial mortgages work to help you start and grow your business while managing financial risk.

Key Points: 

• A commercial mortgage is a loan used to buy a commercial property, like office buildings, retail spaces, or industrial facilities.
• Types of commercial properties you can finance include office buildings, retail stores, plazas, warehouses, industrial facilities, and multi-unit residential complexes.
• Commercial mortgages are used to finance income-generating properties for businesses, while residential mortgages are intended for personal residences.

What Is A Commercial Mortgage?

A commercial mortgage is a type of financing that helps cover the cost of real estate. These properties may be used for commercial purposes by businesses, such as:

• Partnerships
• Limited companies
• Corporations

The mortgage is collateralized by the commercial property. The loan is then repaid via installments over a specific period. 

The approval process and repayment plan for commercial loans can be more complex, more expensive, and riskier compared to a residential mortgage.   

Common Commercial Mortgage Features 

In Canada, businesses and companies can apply for several types of commercial mortgages, each of which has different features. The conditions of your particular mortgage can also vary according to your lender’s rules. 

However, there are some basic features most Canadian commercial mortgages have:       

What Is Classified As A Commercial Property?

When you apply for a commercial mortgage, you’ll have to indicate what type of property you’re trying to finance. Here are some of the most popular commercial properties in Canada, as well as their maximum loan-to-value (LTV) ratios:

If you’re a landlord looking to purchase investment real estate, there are also 3 types of residential properties you can finance with a commercial mortgage:

• Standard Residential (1–4 units)
• Standard Residential (5+ units)
• Residential/Commercial Mixed

Commercial Mortgage Vs. Residential Mortgages

There are several differences between commercial and residential mortgages that you should be aware of before you apply for either option: 

Requirements

Your ability to qualify for a residential mortgage is mostly based on your personal income, credit score, and outstanding debts. For commercial mortgages, approval is based on the property you want to purchase, along with your personal and business credit, debt-to-income ratio, and net worth.

Down Payments

Most commercial mortgages require you to put more money down than residential ones. For instance, a 25% down payment may be required for a multi-family rental property, office, or retail property, while an industrial building may require closer to 35%.        

Interest Rates

Commercial properties can be much more expensive than residential homes. As such, they’re much riskier for lenders. So, higher interest rates will apply, especially if the enterprise doesn’t have a strong business credit score or projected revenue.  

Processing Times

Most commercial mortgages take about 6 weeks to 1 year to close, while some residential mortgages can be closed in as little as 4 weeks (although up to 90 days isn’t uncommon).    

Processing Costs

Commercial mortgages have higher processing costs than residential mortgages due to the extra time and paperwork needed. For instance, you might have to pay around $2,000 for an environmental report and $3,000 for a property appraisal. You may also want to hire an attorney or real estate broker.

Do Commercial Properties Require Mortgage Default Insurance? 

The Canada Mortgage and Housing Corporation (CMHC) is Canada’s largest provider of insurance for residential and commercial mortgages. Commercial properties in Canada can qualify for CMHC mortgage insurance, but it’s typically limited to multi-unit residential properties, such as:

• Rental Buildings
• Mixed Residential-Commercial Buildings
• Care & Retirement Facilities
• Student Housing Projects

Standard commercial properties, like office buildings or retail spaces, do not usually qualify for CMHC insurance unless they include eligible residential units.

As mentioned, commercial mortgages come with significant financial risk, so it’s probably a good idea for your business to have CMHC insurance. Plus, the lender is taking the most risk because there’s always a chance your business will go bankrupt, so they’ll typically want it to have mortgage insurance.

Eligibility Requirements For A Commercial Mortgage In Canada      

Your business must meet certain criteria before lenders approve a commercial mortgage application: 

• Debt Service Coverage Ratio: This ratio demonstrates your business’s available cash flow compared to its loan payments.
• Business Type: Businesses that don’t demonstrate profitability may not be eligible for favourable commercial mortgages. When applying, be sure to have a solid business plan to prove that your company can earn enough to cover the loan.
• Business Profitability: Most commercial lenders also prefer to fund a business that’s been making a steady profit for many years.
• Credit History: Your business should have a good credit history and as little unpaid debt as possible. You may also need a good personal credit score to ensure that all payments will be made.
• Down Payment: Many commercial mortgages require a down payment of 25-35% for standard properties, though some specialized programs (ie. insured multi-unit residential) may require less.

Where To Get A Commercial Mortgage In Canada

Commercial mortgages are available from various types of lenders, each offering different benefits depending on your financing needs:

Banks

Major institutions like RBC, TD Bank, BMO, CIBC, and Scotiabank offer commercial mortgages for established businesses. They typically require strong financials, good credit, and detailed documentation.

Credit Unions

Credit unions may offer more personalized service and flexible terms with commercial mortgages. This option may be more suitable for small businesses or local investors looking for community-based lending. However, you’ll need to be a member to borrow from a credit union.

Private Mortgage Lenders

Private mortgage lenders provide alternative financing for borrowers who may not meet standard qualifications that banks require. They often accept lower credit scores and assume higher risk, but charge higher interest rates and fees.

Government-Backed Options

Other options may be available, such as loans from the Business Development Bank of Canada (BDC). The BDC offers financing solutions tailored to small and medium-sized businesses across Canada. These loans are known for their flexible terms, competitive rates, and support for entrepreneurs who may be unable to qualify through traditional banks. 

How Do I Apply For A Commercial Mortgage?

You can apply for a commercial mortgage by following these steps:

Step #1: Review Your Business Finances

If you have an established business, be sure to go over your books and finances to confirm that everything is ready. You want to be able to show that your business will likely grow in size and revenue. This is especially true if you’re applying with a traditional lender.     

Step #2: Determine What Kind Of Financing You Want 

Before you apply for a commercial mortgage, it’s important to create a detailed budget and consider all costs involved. Many businesses don’t consider this issue, and most lenders will turn down entrepreneurs who are not prepared. So, consider these other factors besides the property’s sale price:

• Whether you’ll be financing or leasing the property
• What kind of property you want and where it should be located
• How much space the business needs right and if it expands
• How much production time would be lost during an expansion
• If the property requires repairs or improvements
• The recurring costs that may come up (legal fees, etc.)

Step #3: Organize Your Business Documents

Once you’ve found a commercial property to mortgage, the next step is to gather and update any relevant documents you’ll need to apply, such as:

• A detailed and viable business plan
• Your latest business financial statements
• Information about the commercial property
• Details about your staff (particularly your management team)

Step #4: Talk To Your Lender

Be prepared when applying for a commercial mortgage to show that your business can handle loan payments. If you’re not totally prepared, it’s best to speak with your lender before you bid on the property so you can discuss things like:

• The type of commercial mortgage you need
• The lender’s specific financing conditions
• If a title search or appraisal is required
• If environmental or building condition assessments are needed

Step #5: Make An Offer

Once you’re ready, make sure to submit your offer with at least 1 or 2 months to spare until you need the commercial property, as this is the average time most lenders take to review your paperwork and finalize your loan approval.    

What To Consider Before Getting A Commercial Mortgage

Here are some other important factors to think about when it comes to commercial mortgages in Canada: 

Loan-To-Value Ratio

A loan-to-value ratio refers to how much of the property’s value your lender covers. The higher your LTV is, the more money you can save and reinvest in the business (though shortfalls may have to be deducted from your personal funds or the company’s working capital)       

Amortization Period

Most commercial mortgages have terms of 15 – 20 years. A shorter amortization period means you’ll be out of debt faster, the rates may be higher. And although you’ll pay more interest during longer mortgages, you’ll have access to capital for that time.    

Renovations

Improving your business property with repairs, renovations, and additions can increase its real estate value. In this case, your lender may let you add associated costs to your mortgage.  

Tax Benefits Of Commercial Mortgages

Business owners may be able to benefit from the following tax perks of commercial mortgages:

• Mortgage Interest Deduction: The interest paid on a commercial mortgage is typically tax-deductible as a business expense. This reduces your taxable income and your overall tax liability.
• Depreciation: Owners can claim depreciation on the building through the Capital Cost Allowance (CCA). This lets you gradually write off the cost of the property, which can reduce your taxable income even further.
• Operating Expense Deductions: Property-related expenses, such as maintenance, utilities, insurance, and property management fees, are generally deductible. These deductions can help offset rental income or business revenue tied to the property.

Risks & Challenges Of Commercial Mortgages

Consider the following potential risks of commercial mortgages in Canada before applying:

• Higher Interest Rates: Commercial mortgage rates are typically higher than residential rates due to increased lender risk.
• Business Performance Dependency: If repayment depends on rental income or business revenue, this can be risky, as such revenue may be unpredictable or seasonal.
• Strict Qualification Criteria: Lenders require detailed financial documentation, strong credit, and solid business plans, which can make approval more difficult compared to residential mortgages.
• Large Down Payments: Most commercial loans require 25% to 35% down, which can be difficult to come up or may limit investment opportunities.
• Limited CMHC Insurance: CMHC insurance is only available for multi-unit residential properties, not standard commercial buildings, which reduces lender protection.

Additional Reading

Best Business Credit Cards Canada 2025

What Is A Purchase Plus Improvements Mortgage?

Minimum Credit Score Required For Mortgage Approval In Canada 2025

Bottom Line

A commercial mortgage is a major financial investment that carries risk for everyone involved. This is why finding the right lender to work with is so important. Loans Canada can help put you in contact with a commercial mortgage provider today.

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 Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.