Since these types of mortgages are so case-specific, and are not openly advertised, the best thing you can do in this regard, is to work with a good, Richmond (Vancouver) commercial mortgage broker. They will have access to information that will be extremely difficult to find otherwise. This includes competitive rates and terms for retail or office space purchases in Richmond, Vancouver or the rest of B.C. Below, we’ll explain a few general pointers on how rates and terms are determined for a retail or office mortgage in B.C. If you’re buying a business with your property, that can change your mortgage application requirements When you apply for an office or retail commercial mortgage in B.C., you’ll be in one of two circumstances: 1) Buying a commercial space with a business ‘attached’ to it In this scenario, the equipment and furniture in the space is already being used to operate a business. You’re taking it over, along with the other tangible and intangible aspects of the business (such as its brand recognition, its trademarks and patents, documented operations processes, clientele lists, etc.) For a good mortgage lender to accept your financing application, they will need to see the previous two years of business financials from the existing business owner. Then, they will determine whether or not it is profitable by calculating what’s called a “capitalization rate.” A capitalization rate is typically formulated by taking the net operating income (NOI) and dividing it by the current market rate of the property (i.e. its current asset value). Note: it is rare to use the purchase price as the dividing factor in capitalization rate. This is because it is not entirely reflective of the return on investment that lenders can earn on the mortgage. An ideal capitalization rate for lenders is between 4% to 12%. However, it depends on the area, the type of business, and the type of property in question. For example, improvements on the property, or changes in the business structure can also affect future profit. This may also be taken into account in your mortgage application. But again, it depends on the lender’s criteria. 2) You’re buying an empty commercial unit with plans to build a business within it, from scratch In this scenario, the mortgage is considered based on the unit value itself and your own potential to build a profitable business. This changes the game a little bit. Since there are no existing financials to back your case on, you’ll need to provide a business plan to show that you have your ‘ducks in a row’ (so to speak). The lender will compare your business approach with others in your area and industry, to determine if you are being reasonable. This is where it can be extremely important to consult with a business advisor or accountant. They can help you thoroughly consider the financial aspects of your business, to better predict profitability. They can also make a ‘proper’ business plan, which will ‘speak’ to a lender with more professionalism. Other factors a lender will consider will be about you, personally. They will want to know if you have industry experience and can succeed in your new business venture. They will check your credit history, your personal assets and other sources of income. Ultimately, the lender will want to know that you can make mortgage repayments, in the event that the business struggles. Regardless of the situation you're in above, the following principles will usually always apply to the terms and rates you can get for a commercial mortgage (click each item to read more). Business location and property marketability can yield better commercial mortgages If you are planning to purchase a retail or office property in a busy, commercial area with plenty of foot-traffic, this can work in your favour when applying for a mortgage. If the property is already in good condition, that will be even better. Lenders may be willing to offer a higher loan amount in these cases. This is because the property will be easy to resell, should you default on loan repayments. In essence, the lender will account for security in knowing that they can dispose of the property to get their money back, should things go southward. Renovations and equipment purchases can sometimes be financed with a retail or office mortgage Whether you decide to buy an existing business or start one from scratch, no doubt you may encounter costs for renovations and equipment. In some cases, a lender will allow you to ‘fold in’ the financing of these needs with your mortgage. For example, they may offer an additional loan to help a dentist buy dentist’s chairs. Or, they may help a salon renovate, to attract more customers. In these scenarios, the borrower would pay back the loan with the same repayment schedule as the mortgage on the property. If you need the cash flow to be able to afford these upfront costs, then the best commercial mortgage for you will be one that can offer this deal. Timelines matter when it comes to retail and office mortgages Depending on your timeline, a commercial mortgage broker may advise opting for a flexible mortgage, rather than a low-rate mortgage. This is because low-rate mortgages with ‘A’ lenders may not be able to come through as fast as ‘B’ lenders or ‘C’ lenders. If you’re in a race to win a bid on a property, you’ll want a lender that can get you cash quickly. Afterwards, switching to a different type of lender, with lower rates, may be possible. Terms and amortization periods can affect your end purchase costs With commercial retail and office mortgages, there will be terms and amortization periods, just like with residential real estate. These generally follow the principles of all commercial mortgages. The terms can go up to 5 years, after which point you will need to renew or transfer your mortgage. These intervals are a good time to be in touch with your commercial mortgage broker, so they can get you better deals, if possible. This can save you thousands over the span of your repayment schedule. Amortization periods can go up to 15 or 20 years. This means you’ll have to pay off the entire loan within that time period. Please see more on our website.