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Financial products
Financial products
There are many financial institutions and lenders in Southern Ontario. A lot of options.Their offering may be packaged in various financial products and it can get confusing. Fortunately, It does not have to be when you work with right professionals.
cash flow
cash flow
Commercial loans prioritize the income generated by the property or business first, with personal credit acting as a secondary.
Commercial mortgage considerations involve many factors. Each lender applies distinct criteria and preferences to a deal.
To name a few, a lender will evaluate:
Cash flow, loan-to-value ratio, Existing lease quality, lease maturity
Location, tenants, building condition
Environmental aspect
If you already have a good relationship with your bank, maybe you should start there. If you do not have a trusted contact and you need help, I can leverage my contacts with lending industry professionals to give you more options. If you have a transaction in mind or property in mind, and you need to finance it, please reach out to have a discrete discussion. I can connect my clients to suitable channels through major banks such as RBC, BMO, National Bank to name a few, as well as alternative and private lenders.
Debt Service Coverage Ratio (DSCR): This is the single most important metric lenders use. It measures the property's ability to cover its annual debt payments
Lending Benchmarks: Most commercial lenders look for a minimum DSCR of 1.20x to 1.35x. A DSCR of 1.25x means the property generates 25% more cash flow than required to make its loan payments.
Strong and stable DSCR over 1.3 and excellent credit and high liquidity is ususally approved quickly with favorable interest rates. Lenders want to see post-closing liquidity up to 6 months of principal, interest, taxes, and insurance reserves to prove you can weather short-term cash flow shocks without defaulting.
I do not want to oversimplify this, because this process involves other factors that can help you with securing financing even if higher risk for the lender is involved. Very often, lenders will also ask for a personal guarantee. This is called a recourse loan. Larger and well-established businesses, with good recurring revenue and extensive good business credit history, often get away without it. Again, it's about the overall health and growth potential of your enterprise, and not your personal credit record. Depending on the type of loan, the criteria for approval greatly change.
Other type of financing may also be available to you. Business financing like lines of credit, Capital Expenditures Credit, Credit for leasehold improvements to name a few. I have a strong opinion that if you know that financing of any kind will be required, you should start talking to the lender early. I am here to help you out. Transactions that involve lenders are generally more complex due to the fact that there is another party at the table. Getting all parties on board early saves everyone’s time and ultimately ensures a smooth transaction.
What you need to prepare
What you need to prepare
Depending on the asset type and type of ownership, documentation will vary greatly. Your finance professional will ask for specific documents. Borrower information and ownership structure, property-specific operating statements for the last 2–3 years are typically required.
Rent rolls are typically required for leased properties. To get a commitment, you will need more documentation. This process will vary a lot among the lenders but it can take easily 3-5 weeks and sometimes more to get funding.
How much money can you get?
How much money can you get?
Financial products will have detailed specifications with maximum loan amounts and qualifiers. Max amounts are typically not an issue for small entrepreneurs. Commercial loans over $ 100 million are possible. Larger banks do have minimum thresholds. For smaller amounts, you may want to look elsewhere.
Financing Warehouse, Industrial, Retail or office property
Financing Warehouse, Industrial, Retail or office property
Oakville | Burington | Mississauga | Hamilton and Halton region
Oakville | Burington | Mississauga | Hamilton and Halton region
Big banks will do commercial mortgages for amounts over a million dollars. Smaller amounts may be eligible for term loans. It makes sense to start talking to your bank or finance professional early in the process if you know that financing will be required to complete the transaction. If you need someone to talk to and you are in Oakville, Burlington, Mississauga, or the Halton region, please let me know. If banks are not going to lend you money, there could be other options. If you do not know who to call, I'll be happy to connect you with your bank's proper channel.
Please contact me to identify cost-effective warehouse, industrial, or retail properties in your target area.
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