01
Two underwriting files have to agree
An owner-occupied commercial mortgage is both a real-estate loan and a business loan. The property supplies collateral; the operating company generally supplies the cash flow. If either side is weak or poorly documented, the lender can reduce proceeds, add conditions, or decline the request.
Start by normalizing earnings rather than simply quoting revenue or EBITDA. Explain one-time items, owner compensation, related-party rent, unusual expenses, customer concentration, seasonality, and the debt that will remain after closing. The lender must be able to reproduce the repayment story from source documents.
Then make the property fit the business plan. Explain why this location, size, configuration, and cost improve resilience or capacity. Extra space can be strategic, but it also creates carrying cost and may require a credible leasing or growth plan.
02
Choose the ownership structure before the commitment
Many owners hold the property in a separate company and lease it to the operating company. That can create legal, tax, succession, and risk-management advantages, but the lender will still examine the relationship between the entities and may require guarantees, postponements, assignments, or cross-collateral support.
Document beneficial ownership, the flow of rent, inter-company balances, existing security, and who will pay for improvements. A related-party lease should support the financing without disguising operating-company weakness.
Discuss the structure with legal and tax advisors before signing the purchase agreement or transferring assets. Mortgage advice does not replace advice about tax, HST, corporate reorganization, creditor protection, or succession.
03
Budget the cash requirement beyond the down payment
Commercial closing cash can include the purchase equity, land transfer tax, legal and lender costs, appraisal and environmental work, insurance, repairs, tenant or operating-company fit-up, moving, inventory disruption, and working capital. Some lenders can finance selected project costs; others finance only a portion of property value or purchase cost.
Do not use every available dollar for the closing. The operating business still needs liquidity after the move, especially when production pauses, contractors are delayed, or new equipment and permits arrive on a different schedule.
BDC’s current public Commercial Real Estate Loan page, for example, describes property acquisition, construction, and renovation uses, amortization up to 25 years, and project-specific financing that may include related costs. It also says applicants are generally Canada-based, have generated revenue for at least 24 months, and show financial health and a good credit track record. These are public indicators, not approval criteria for the whole market.
04
Treat property diligence as credit protection
A lender appraisal is not a substitute for the borrower’s own diligence. Confirm zoning and lawful use, building condition, access, parking, servicing, fire and life-safety requirements, insurance availability, title, survey, and environmental condition before waiving conditions.
Industrial and automotive uses, older heating systems, former fuel storage, and neighbouring uses can trigger environmental review. A Phase I environmental site assessment may lead to further investigation. Build that time into the agreement and financing schedule.
For a condominium unit, review the corporation’s status, declarations, reserve fund, permitted use, common expenses, and restrictions. For a mixed-use asset, separate owner-occupied and third-party income so the lender can underwrite each appropriately.
- Make financing and diligence conditions long enough to be useful
- Confirm the intended use before relying on renovation drawings
- Reconcile appraisal area and income to the purchase agreement
- Do not assume replacement-cost insurance equals market value
05
Build a lender package that answers the hard questions
The best package is concise but traceable. Lead with the request, use of funds, ownership, property, repayment source, equity, and timing. Follow with historical evidence and a forecast that bridges from the existing business to the post-closing business.
- Explain revenue and margin changes, including customer or supplier concentration
- Reconcile add-backs to accountant statements and tax filings
- Show all existing debt, liens, guarantees, and shareholder obligations
- Separate property costs, business costs, and optional expansion costs
- Stress-test payments, transition delay, and a weaker revenue period
- Identify management continuity and key-person dependencies
06
Compare structure, not just rate
Commercial facilities may differ on amortization, term, fixed or floating pricing, prepayment, reporting, guarantees, security over business assets, annual review, capital-expenditure advances, and covenant tests. These differences can matter more than a small rate gap.
Ask what happens if the renovation is late, the move costs more, a shareholder changes, the company needs new equipment, or the property is sold. Confirm whether the lender can demand fresh appraisals, annual financial statements, or covenant certificates and who pays those costs.
Where bank timing or conventional underwriting does not fit, short-term bridge or private money may be considered. In Ontario, FSRA warns that alternative/private mortgages commonly have higher rates and fees, shorter terms, and interest-only features, and emphasizes a realistic exit strategy. The exit should be evidenced before closing—not simply described as “refinance later.”