FAQ
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A Commercial Mortgage is a loan secured by commercial property with five or more units such as an office building, shopping center, industrial warehouse, apartment, mixed-use facility, and other similar properties.
The most critical items when applying for a Commercial Mortgage are Loan to Value (LTV), Debt Service Coverage Ratio (DSCR), Net Operating Income (NOI), and Capitalization Rate (Cap Rate). These items evaluate cash flowing commercial properties and help determine viable funding. Use the Commercial Mortgage Calculator Tool to help.
When it comes to assessing properties with no current cash flow, it depends on you, the borrowing entity (whether an individual or company). Although you usually won’t need to debt service your loan during the initial period of construction, in order to qualify and receive funds, you may be required to demonstrate future projected revenues, sales, and other considerations.
A typical Commercial Mortgage deal takes from 60 days to 90 days to complete full funding. Some commercial transactions can take up to 120 days, excluding any delays resulting from receiving documents, registering titles, getting appraisals, etc.
Yes, but not in the same way as it would in a Residential deal. The main requirement of a commercial property is its ability to service the mortgage debt. However, when lenders evaluate the borrower, they will consider the borrower’s credit score and net worth when determining the rate and terms. So, if there is any reason that the property requires additional funds for future repairs or vacancy, etc. then this is when the borrower’s net worth and access to cash will make a difference.
Financing allows you to acquire the equipment and maintain ownership while you are paying for it. This option may be the right choice when purchasing equipment that will retain its value over time. Conversely, when leasing, the Lender technically owns the equipment for the period you are paying for its use. Often the Lender arranges a Lease-To-Own contract for equipment so that you own it after you’ve made the payments for the term. There are advantages to either option; however, an accountant would advise on which option is best.
If the Lease is from a vendor or supplier of the equipment, they are responsible for service and maintenance. However, some lenders pass that responsibility back to you as part of your obligations under the Leasing Contract Terms and Conditions.
No! It is still possible to get funding from a lender who understands the industry and the value of the equipment. If there is a demand for your business or a need for specific equipment in your industry (and future work), your chances of getting funding are greater.
There are several factors that lenders consider when financing equipment, including Make, Model, Age, Condition, Industry, New or Used, Additional Accessories, etc.
Usually, this depends on finding the appropriate Lender. To help make it easier, ensure that the used equipment is in good condition and still has years of use ahead. Since financing a used piece of equipment has a specified value, it should depreciate less depending on the industry and equipment type. This way, your business can profit without having to pour lots of money into equipment purchases.
When you negotiate a Lease Agreement, if structured as a Master Lease Agreement, there may be provisions to add more equipment. This aspect is lender-specific and needs discussion with the Lender.
Factoring Companies have different considerations when it comes to a company’s receivables. A rule of thumb is that the easier it is to collect the receivable, the more valuable the asset. With that in mind, a more recent invoice will be more valuable than an older or unpaid invoice, and a more established company is more valuable than a newer company.
If a receivable has surpassed 90 days, then the Factoring Company will give them lower value. Usually, Factors will only consider receivables that are less than 90 days’ worth factoring. Depending on the industry and type of receivable, in specific situations and on a case-by-case basis, they will consider the receivable after 90 days.
No. Every company can choose which invoices to factor. Sometimes, the more invoices factored, the better the terms and rates given from the factoring company, as this spreads the risk across more invoices.
Factoring has very few restrictions and isn’t a loan, while a loan has more limitations and has set covenants to follow. Factoring is directly tied to the number of accounts receivable in a company, giving unlimited access to funds, whereas a commercial loan depends on the collateral offered.
There are a few items that can affect your receiving factoring. Suppose a company owes outstanding corporate taxes to CRA, property taxes owed to the municipality, or other registrations that might take top priority over the factoring companies’ interest. That may cause some issues unless there have been special arrangements made.
