Commercial real estate
Commercial real estate financing covers buying, refinancing or bridging property your business owns or occupies. Lenders look closely at the property, its value and existing charges on title.
Key points
- Commercial real estate financing helps you buy, build or refinance a building your business uses or rents out.
- Lenders usually finance around 65% to 75% of the property’s value.
- The property’s income, or your business’s cash flow, has to comfortably cover the payments.
- Because it’s secured by property, licensing rules may apply to who can arrange it.
What is commercial real estate financing?
It’s a mortgage on a property used for business, such as an office, warehouse, retail unit, industrial building or multi-unit rental. The property secures the loan. Down payments are larger than for homes, and lenders look closely at whether the property or the business can carry the payments.
Owner-occupied or investment property?
| Owner-occupied | Investment property | |
|---|---|---|
| Who uses it | Your business | Tenants |
| What lenders focus on | Your business’s cash flow | The rent and the strength of the leases |
| Typical down payment | Often 25% to 35% | Often 25% to 35% |
| Why people do it | Stop paying rent, build equity | Income and long-term growth |
How NorthMerit can help
Apply once and we’ll connect you with one financing partner who works with businesses like yours. It’s free, and there’s no obligation.
How lenders decide how much to lend
Lenders look at two numbers. The first is loan-to-value: how much they’ll lend compared with the property’s appraised value. The second is the debt service coverage ratio, which compares the property’s net income to its annual mortgage payments. Lenders commonly want at least 1.2 to 1.25, meaning the income covers the payments with a 20% to 25% cushion.
An example
A clinic buys its building for $1,200,000 with 70% financing.
Costs to plan for
| Cost | Why it’s needed |
|---|---|
| Appraisal | Confirms the value the lender will use |
| Environmental report | Checks for contamination, often required |
| Building inspection | Flags repairs before you commit |
| Legal fees and land transfer tax | To complete the purchase and register the mortgage |
| Lender or broker fees | Common on commercial deals |
Common questions
Who arranges commercial mortgages?
How long does it take?
The right financing, from the right partner.
Apply once. One financing partner who knows businesses like yours. Free, with no obligation.
