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Similar to a traditional mortgage, a commercial mortgage involves borrowing money to finance a piece of real estate. Only in this case, the property isn’t zoned for residential purposes but rather for commercial use by businesses, like:

  • Partnerships
  • Limited companies
  • Corporations

Typically, the mortgage is taken out against the commercial property, which acts as collateral until the loan is repaid. The borrower then pays the loan back in divided installments (with interest and fees) over a predetermined period. 

Since the commercial mortgage approval process and subsequent payment plan can be more complicated, more expensive, and riskier than that of a home mortgage, it’s important to educate yourself properly before applying for one.   

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:       

Mortgage Interest RatesFixed, variable, or combined
Loan-to-Value Ratio (LTV)As high as 85%
Mortgage Term1 – 25 years
Amortization Period25 years maximum (insured up to 40 years)

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:

  • Commercial Plaza = 75%
  • Construction Project = depends on property
  • Farmland = 55%
  • Industrial = 75% 
  • Multi-Family Residential (1 to 4 units) = depends on property  
  • Multi-Family Residential (5 or more units) = 85%
  • Storefront (with Apartments or Residential Commercial Mixed) = 80%   

If you’re an aspiring landlord looking to buy one or more investment properties, there are also 3 types of residential properties you can finance with a commercial mortgage:

  • Pure Residential (1 to 4 units)
  • Pure Residential (5 or more units)
  • Residential Commercial Mixed

Commercial Mortgage vs. Residential Mortgages

Like residential mortgages, every commercial mortgage comes with its own rates and repayment conditions. Additionally, every commercial/business lender has a particular way of assessing their potential clients for financing. 

That said, there are several differences between commercial and residential mortgages that you should be aware of before you apply for either, including but not limited to: 


Your ability to qualify for a residential mortgage is mostly based on your personal income, credit score, and outstanding debts. Specific approval criteria are often not advertised as approval is based on the property you want to purchase.

Down Payments

Most commercial mortgages require you to put more money down than residential ones. For example, a down payment of about 25% is necessary for multi-family rental, office or retail properties, while industrial spaces require closer to 35% (the lender funds the rest until the loan is paid off).        

Interest Rates

Despite their potentially high value, commercial properties can be significantly more expensive than residential ones and are therefore much riskier for the lender. As such, 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 CMHC Insurance? 

The Canada Mortgage and Housing Corporation (CMHC) is our country’s largest provider of insurance for residential and commercial mortgages. Available through a vast selection of providers, CMHC insurance helps cover lenders and borrowers during the construction, purchase or refinancing of multi-unit properties, such as:

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

Key Features of CMHC Mortgage Loan Insurance

  • Financing terms of 1 to 10 years
  • Extendable amortization periods of up to 40 years
  • Interest rates starting at 3.50%   
  • Down payments as low as 15%
  • No traction size limits
  • Insured properties qualify for competitive floating and fixed interest rates
  • Financing amounts as high as 85% of the property’s lending value
  • Flexible products to meet project financing needs and reduce renewal risk

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 declare bankruptcy, so they’ll normally want it to have mortgage insurance. 

Eligibility Requirements For A Commercial Mortgage In Canada      

Since commercial mortgages can involve high loan-to-value ratios and risk levels, your business must pass certain criteria before most lenders will approve it for financing: 

  • Debt Service Coverage Ratio – This is the first factor lenders consider, as it shows your business’s available cash flow versus its loan payments. Depending on the size of the mortgage, they may want you to offer some cash upfront too.    
  • Type Of Business – Businesses that don’t seem profitable may not qualify for good commercial mortgages. Present a solid business plan when you apply to prove that your enterprise can make enough income to cover the loan.       
  • Health Of Business – Most commercial lenders also prefer to fund a business that’s been making a steady liquid (not equity) profit for several years. Your enterprise may even need a minimum net worth of $100,000 – $200,000.      
  • Credit History – To qualify for a decent commercial mortgage, 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 – Depending on your risk profile, lenders may ask for higher down payments than they would for residential properties. Mixed properties often require 20% – 35% down, while pure commercial properties are closer to 50%.

How To Apply For A Commercial Mortgage

Although your lender might have different approval restrictions, you can apply for most commercial mortgages by following these simple 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. Remember, most commercial lenders only accept businesses that are predicted to grow in size and profitability. This is especially true for banks, many of which will deny a business that doesn’t have a good income history.     

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 overlook this issue and the majority of lenders will deny entrepreneurs who aren’t prepared. Don’t just think about the property’s sales price. Make sure to consider these other factors too:

  • 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 needs repairs, maintenance, or improvements
  • The recurring costs that may arise (operational fees, 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

When you apply for a commercial mortgage, you’re trying to win the lender’s favour by proving that your business can handle any loan payments, interest, and fees charged during the amortization period. 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:

  • What type of commercial mortgage your business needs
  • What the lender’s specific commercial financing conditions are
  • Whether a title search and/or appraisal is necessary
  • What environmental and building condition assessments you should get    

Step #5 – Make An Offer

A commercial mortgage is a serious investment that can severely harm your business if not handled responsibly. Take adequate time to think about your decision and possible mortgage conditions, as you could be stuck with them for some time. This way, there won’t be any complications or arguments during the mortgage application process.  

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 agrees to fund. Typically, banks can finance 75% – 100% if the property is in good shape and has decent resale value. 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. While a shorter amortization may help your business get out of debt faster, interest rates will usually be higher (and vice versa). Although you’ll pay more interest during longer mortgages, you’ll have access to capital for that time.    


Improving your business property with repairs, renovations and additions can increase its real estate value. In that case, your lender might allow you to lump any associated costs into your commercial mortgage.  

Commercial Mortgage FAQs

Where can I get a commercial mortgage?

In Canada, plenty of lenders can offer you a commercial mortgage and each of them has different requirements. For instance, banks and credit unions can be better if you want a large mortgage with a short amortization and a reasonable interest rate, while alternative lenders generally have easier restrictions but higher rates for smaller loans.  

How much do I have to put down for a commercial mortgage?

To qualify for a sizable commercial mortgage with an appealing term and interest rate, you may have to put down 20% – 50% of the property’s total cost. 

What fees should I expect with a commercial mortgage?

While your interest rate is an important expense to consider, commercial mortgages can come with many other costs, including but not limited to:
  • Appraisal fees
  • Legal fees
  • Lender and/or broker fees
  • Title and mortgage insurance
  • Environmental and Building Condition report fees 

Can I get a commercial mortgage from the BDC?

Newer and less established businesses sometimes have trouble getting approved for commercial mortgages. Thankfully, the Business Development Bank of Canada (BDC) is a federal institution that offers commercial mortgages with easier restrictions, longer terms and cheaper costs to Canadian entrepreneurs who need help with their finances.      

How much can I borrow with a commercial mortgage? 

The size of a commercial mortgage can vary widely depending on where you apply and how strong your business is. For example, most traditional mortgage providers, like banks and credit unions have minimum borrowing limits of $500,000 – $1 million. However, some lenders can offer loans as large as $40 million to qualified businesses.  

Looking For An Affordable Commercial Mortgage In Canada?

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.

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

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