Commercial Real Estate Loan

The minimum down payment for a commercial real estate loan in Canada depends on the property type, the lender, and how the financing is structured. As a practical starting point, most borrowers should plan for a minimum of 25 to 35 percent equity — meaning conventional lenders typically advance between 65 and 75 percent of the property’s appraised value or purchase price, whichever is lower.

A few important nuances. LTV is calculated against the lower of appraised value or purchase price — if you are paying above appraised value, your effective down payment requirement increases. For owner-occupied properties, where the operating business is the primary income source, some lenders will consider higher leverage than they would on a pure investment property. And for transitional or value-add assets where the property is not yet stabilised, lenders will typically apply more conservative LTV ratios until stabilisation is demonstrated.

The debt service coverage ratio — DSCR — is the single most important metric in commercial real estate underwriting. It measures whether a property generates enough income to cover its mortgage payments, with room to spare. A DSCR of 1.0 means the property earns exactly enough to cover debt service. A DSCR below 1.0 means it does not. Most institutional lenders in Canada require a minimum DSCR of 1.20 to 1.30, meaning the property must generate at least 20 to 30 percent more income than is needed to make mortgage payments.

In this example, the property passes a 1.20x DSCR threshold with modest headroom. If NOI were lower — due to vacancy, higher expenses, or a lower purchase price — the DSCR would fall and the lender might reduce the approved loan amount, require a larger down payment, or decline the application.

Lenders care about DSCR because commercial mortgages are primarily repaid from property income rather than the borrower’s personal cash flow. A property that cannot service its own debt is a credit risk, regardless of how creditworthy the borrower is personally. DSCR is also the mechanism lenders use to stress-test a deal — many will underwrite not at current income but at a slightly lower stabilised figure to account for potential vacancy or expense increases.

When preparing a commercial mortgage application, use actual trailing income figures — not optimistic projections. Lenders scrutinize pro forma numbers unsupported by in-place leases or comparable evidence, and overstated income projections can delay approval or erode lender confidence in the deal.

There is no universal minimum credit score for a commercial real estate loan in Canada. Unlike residential mortgages, where credit score thresholds are clearly defined and central to the approval process, commercial lending is underwritten primarily on the strength of the property and the overall borrower profile, of which personal credit is only one component.

That said, credit history still matters. Most institutional lenders — banks and credit unions — expect borrowers to demonstrate a clean credit record with no significant derogatory items. A score in the mid-600s and above is generally viewed as acceptable. Below that, institutional lenders may be reluctant, though the property’s income strength and the borrower’s overall financial position can offset concerns in some cases.

What commercial lenders actually focus on when assessing the borrower:

• Net worth and liquidity: Lenders want to see that you have assets beyond the subject property and the financial capacity to carry the asset through vacancy or disruption. A strong net worth statement is often more persuasive than a perfect credit score.
• Real estate experience: Borrowers with a track record of owning and managing similar assets are viewed more favourably. First-time commercial borrowers can still qualify, but may face more conservative terms or higher equity requirements.
• No recent bankruptcies or significant judgements: These are harder to work around at the institutional level, though private and alternative lenders have more flexibility.
• Corporate structure and tax filing history: For borrowers purchasing through a corporation, clean corporate financials and up-to-date tax filings are reviewed alongside personal credit.

If your credit profile has challenges, alternative and private lenders are a legitimate option. They underwrite more heavily on the asset and are less dependent on borrower credit metrics,  though their rates reflect that flexibility. A commercial mortgage broker can assess your profile honestly and direct you to the lender category most likely to work with your specific situation.

Closing costs on a commercial real estate transaction in Canada are more substantial than most first-time commercial borrowers expect, and they are largely separate from the down payment. Planning for these costs in advance avoids surprises at the closing table and affects how much capital you need to have available at transaction close.

• Commercial appraisal $3,500 – $10,000+ Required by most institutional lenders. Costs vary significantly by property size, type, and complexity. Paid by the borrower regardless of whether the deal closes.
• Phase I Environmental Site Assessment $2,500 – $5,000 Required for most commercial transactions. A Phase II (intrusive investigation) adds cost and time if Phase I identifies concerns.
• Legal fees — borrower’s counsel $5,000 – $20,000+ Varies with transaction complexity. Includes review of purchase agreement, mortgage documents, title, and lease assignments. Budget at the higher end for complex or multi-tenant properties.
• Legal fees — lender’s counsel $3,000 – $10,000+ Most institutional lenders require the borrower to cover the cost of the lender’s own legal review. This is in addition to your own counsel.
• Land transfer tax varies by province and value. Ontario and BC charge provincial land transfer tax; Toronto adds a municipal layer. Budget 1–3% of the purchase price, depending on the province. First-time buyer exemptions do not typically apply to commercial properties.
• Title insurance $500 – $2,500 Protects against title defects and survey issues. Usually required by lenders.
• Lender fees / standby fees 0.25% – 1.0% of loan amount Some lenders charge a placement or commitment fee, particularly in the alternative and private lending space. Confirm with the lender upfront.
• CMHC insurance premium 0.25% – 4.5% of loan amount Applies only to CMHC-insured transactions on multi-unit residential properties. The premium scales with LTV and is typically added to the mortgage rather than paid in cash at closing.
• Building inspection / condition reports $1,500 – $5,000 Not always required but advisable on older or complex assets. Some lenders may require engineering reports for large buildings.

As a general rule, budget between 2 and 5 percent of the purchase price in closing costs, in addition to your down payment. Transactions involving CMHC financing, complex multi-tenant properties, or provinces with higher land transfer tax will sit at the upper end of that range. A commercial mortgage broker can help you build a realistic cost estimate specific to your transaction before you commit to a purchase.

Yes. Owner-occupied commercial real estate, where the borrower’s business operates from the property being financed, is a well-established lending category in Canada. Many small and mid-size business owners pursue this path as an alternative to leasing, building equity in the property rather than paying rent to a landlord.

However, the underwriting approach for owner-occupied properties is different from pure investment financing, and it is worth understanding those differences before approaching the market.

With an investment property, the loan is underwritten primarily on the property’s rental income and DSCR. With an owner-occupied property, there is typically no rental income — the property’s value to the lender lies in the operating business’s ability to generate revenue and service the debt. That means lenders will assess the business’s financial statements, revenue history, profitability, and the industry it operates in, alongside the property itself.

Key considerations for owner-occupied commercial financing in Canada:

• Business financials matter as much as the property: Lenders will want two to three years of corporate financial statements, proof of business operating history, and in some cases projections for newer businesses.
• Occupancy requirements vary: Some lenders require the business to occupy a minimum percentage of the building — often 51 percent or more — to qualify the loan as owner-occupied. Hybrid properties where the owner occupies part and leases the remainder are assessed on a blended basis.
• Loan-to-value ratios: Owner-occupied financing can allow slightly higher LTV in some programs, particularly where the business has a strong track record and the real estate serves a genuine operational purpose.
• SBA-equivalent programs do not exist in Canada: Unlike the United States, Canada does not have a direct equivalent to the SBA 504 loan. However, the Canada Small Business Financing Program (CSBFP) can provide support for smaller owner-occupied acquisitions, and some lenders have specific programs for business-use properties.

If you are considering buying the building your business currently leases — or acquiring a new premises — the financing structure will depend on both the property and the business. A commercial mortgage broker can assess both components together and identify the lenders most likely to provide competitive terms for your specific situation.

Not all commercial properties are financed equally. Lender appetite varies significantly by asset class, and certain property types face genuine resistance from institutional lenders — not because they cannot be financed, but because the universe of lenders willing to underwrite them is smaller, pricing is wider, or conditions are more restrictive.

Understanding where lender appetite thins out helps borrowers plan their capital strategy realistically, rather than discovering the constraints mid-process.

• Single-tenant properties with short-term or at-risk leases: A building fully dependent on one tenant’s continued occupancy is viewed as concentrated credit risk. If that tenant’s lease is short-term, unrenewed, or the tenant is not nationally creditworthy, lenders will apply conservative LTV ratios or may decline entirely. This applies across all asset classes — retail, industrial, and office.
• Hospitality and hotels: Income volatility, operational complexity, and the specialised management requirements of hotels make them a challenging category for most conventional lenders. Financing is available, but the lender pool is smaller and terms are typically less favourable than for multi-family or industrial assets.
• Gas stations and automotive properties: Environmental liability — real or potential — is the primary concern. Phase I and Phase II environmental assessments are almost always required, and historical contamination can make a property effectively unfinanceable through institutional channels. Private lending may be the only option for properties with a contamination history.
• Rural and remote properties: Lender appetite diminishes as market liquidity declines. A well-performing apartment building in a small rural town may face challenges that an identical building in a major urban centre would not, simply because the lender’s recovery options in a default scenario are limited in illiquid markets.
• Special-purpose assets with limited alternative uses: Properties designed for a single specific use — car washes, bowling alleys, places of worship, arenas — are harder to finance because their value is tied entirely to the continuation of that specific use. If the operator fails, the lender’s collateral may not be realizable at anything close to the appraised value.
• Vacant or under-stabilised properties: Lenders underwrite on income in place. A vacant building or a property with significant lease-up remaining has limited DSCR support, which restricts conventional lending. Bridge or construction financing is typically the appropriate product for these situations.
• Properties with environmental, structural, or title issues: Any unresolved issue in a Phase I or Phase II assessment, structural deficiencies flagged in a building inspection, or title complications — encumbrances, unresolved liens, survey issues — will stall or prevent institutional financing until resolved.

Difficult-to-finance properties are not automatically dead ends. Alternative and private lenders exist precisely to serve the transactions that fall outside conventional parameters. The trade-off is cost — higher rates and fees — and understanding that from the outset allows borrowers to structure deals accordingly.

Commercial mortgage renewal in Canada is not as straightforward as residential renewal, and borrowers who approach it without preparation can find their options more limited — and more expensive — than expected. Understanding what renewal actually involves is important from the moment you take out the original loan.

When a commercial mortgage term ends, the outstanding balance becomes due. The lender is not obligated to renew on the same terms, or to renew at all. In practice, most lenders will offer renewal to borrowers in good standing — but re-underwrite the loan at renewal based on current conditions, not the conditions that existed when the loan was originated.

Option 1 — Renew with Current Lender

The most straightforward path if the property has performed and your financial position is strong. Expect the lender to review current financials, updated rent roll, and current market value. Terms will reflect prevailing market conditions at renewal, not the original rate.

Option 2 — Refinance with a New Lender

If your current lender’s renewal terms are not competitive, or if the property’s value has increased and you want to access equity, switching lenders at renewal is a legitimate option. Involves a new application, appraisal, and legal costs — but can produce better terms meaningfully.

Option 3 — Bridge or Transition Financing

If the property has challenges at renewal — vacancy, a departing tenant, or a lender declining to renew — short-term bridge financing can buy time to stabilise the asset before re-entering the conventional market.

The risks borrowers encounter at renewal typically fall into three categories. First, rate risk — if market rates have moved significantly higher during the term, debt service costs at renewal increase, which can affect cash flow materially. Second, property value risk — if market values have declined, the lender may apply a lower LTV at renewal, requiring the borrower to pay down principal to meet the new threshold. Third, income risk — if the property has lost tenants or NOI has declined during the term, DSCR may no longer support the existing loan amount.

The best preparation for renewal is active management throughout the term: maintaining occupancy, keeping leases current, and monitoring the outstanding balance against current market value. Beginning the renewal process at least six months before maturity gives you time to explore the full range of options rather than accepting whatever your current lender offers under time pressure.

Early renewal conversations matter. If your loan is approaching maturity and market conditions or the property’s situation have changed, contact a commercial mortgage broker well before the term end date. The options available twelve months out are materially better than the options available thirty days out.

Generally, yes. Interest paid on a commercial real estate loan is typically deductible as a business expense in Canada, provided the property is used to earn income. This applies to investment properties — where rental income is the source of revenue — and to owner-occupied commercial properties where the business uses the premises to generate business income.

The Canada Revenue Agency’s general principle is that interest expense is deductible when the borrowed money is used for the purpose of earning income from a business or property. A commercial real estate loan used to acquire or improve an income-producing property generally meets this test.

In practice, deductible interest expenses on a commercial property can include the interest portion of regular mortgage payments, standby fees, lender fees, and in some cases financing costs incurred to secure the loan. These are typically reported as expenses against rental income (on a T776 form for rental properties) or as business expenses (for owner-occupied commercial real estate).

Yes, though the options are more restricted than for Canadian residents, and the structure of the financing typically needs to be handled carefully. Non-resident and foreign national borrowers do participate in the Canadian commercial real estate market, and financing is available, but not through all lender types.

Most of Canada’s major banks and credit unions are cautious with non-resident commercial borrowers, particularly when the borrower has no established Canadian banking relationship, no Canadian credit history, or where the income supporting the loan is earned entirely outside Canada. This does not mean conventional financing is impossible, but it typically requires a more established borrower profile and a stronger equity position than a comparable Canadian resident transaction.

Alternative and private lenders are generally more flexible with non-resident borrowers and often represent the most practical starting point for foreign nationals entering the Canadian commercial market. These lenders underwrite more heavily on the asset — its income, location, and quality — rather than on the borrower’s domestic financial profile. The trade-off, as with any alternative lending, is higher rates and fees.

Structural considerations for non-resident commercial borrowers in Canada:

• Purchasing through a Canadian corporation can simplify the financing and tax structure, and some lenders are more comfortable lending to a Canadian entity, even where the beneficial ownership is foreign.
• Withholding tax obligations apply to rental income earned by non-residents in Canada under the Income Tax Act,  typically 25 percent of gross rents, reducible under tax treaty elections. This affects net cash flow and should be factored into any DSCR analysis.
• Foreign Buyers restrictions under the Prohibition on the Purchase of Residential Property by Non-Canadians Act are generally aimed at residential property. Most commercial real estate is outside the scope of these restrictions, but multi-unit residential buildings and mixed-use properties may have nuances worth clarifying.
• Larger equity positions are typically required — non-resident borrowers should plan for a minimum of 35 to 40 percent down payment at the institutional level, and potentially more with private lenders depending on the asset.

If you are a non-resident or foreign national considering a commercial real estate investment in Canada, working with a commercial mortgage broker experienced in cross-border transactions is worth doing before approaching any lender directly. The financing landscape is navigable, but the path is less direct than for Canadian residents.