Financing Guide

How to Finance a Commercial Property Purchase in Ontario

Financing is where many first-time commercial buyers get caught off guard. Commercial mortgages work differently from the residential loans most people know — the down payments are larger, the underwriting focuses heavily on the property's income, and the terms are more varied. Understanding how commercial lending works before you make an offer makes you a stronger, more credible buyer and helps you avoid deals that won't finance.

Commercial lending underwrites the property, not just you

The single biggest difference from residential: a commercial lender underwrites the asset's ability to service the debt, alongside your own financial strength. They'll look closely at the property's net operating income, its leases and tenant quality, and a metric called the debt service coverage ratio (DSCR) — essentially, how comfortably the property's income covers the loan payments. A property with strong, stable income and creditworthy tenants finances more easily than one with vacancies or short remaining lease terms, even at the same price.

Expect a larger down payment

Commercial mortgages typically require a larger equity contribution than residential purchases. Depending on the asset class, the lender, and the strength of the income, buyers should generally plan for a meaningful down payment — often substantially more than the minimums associated with residential property. Multi-residential apartment buildings can sometimes access more favourable, higher-leverage financing (including CMHC-insured options in Canada) than, say, a specialty single-tenant asset. The stronger and more stable the income, the more favourable the financing terms tend to be.

Know your financing options

Ontario commercial buyers generally have several avenues:

• Conventional commercial mortgages from banks and credit unions, underwritten on the property's income and your financials.
• CMHC-insured financing for qualifying multi-residential (apartment) properties, which can offer higher leverage and better rates in exchange for insurance premiums.
• Alternative and private lenders for value-add, transitional, or non-stabilized assets that don't fit conventional criteria — typically at higher rates, used as a bridge.
• Vendor take-back financing, where the seller finances part of the purchase, which can sometimes bridge a gap in a negotiated deal.

The right structure depends on the asset, your timeline, and your objectives.

Get your financing framework ready before you offer

You don't need a fully approved loan to start looking, but you should have a financing framework: a realistic budget, a sense of your likely down payment, and a relationship with a commercial lender or mortgage advisor who understands your asset class. This does two things. First, it tells you what you can actually afford, so you underwrite realistic deals. Second, it makes you credible — sellers and their brokers prioritize buyers whose financing looks real, especially on off-market opportunities where certainty of close matters.

Common financing mistakes to avoid

• Underwriting with residential assumptions. Commercial down payments, rates, and amortizations differ — don't assume residential norms carry over.
• Ignoring lease and tenant risk. Short remaining lease terms or weak tenants can shrink the loan a lender will offer, even on an otherwise attractive building.
• Leaving financing to the last minute. Lining up financing after you're under contract, rather than before you offer, is how good deals fall apart.

Financing is part of buyer strategy, not an afterthought

The buyers who close cleanly treat financing as part of their acquisition strategy from day one. That's another reason to work with a buyer's representative: a good advocate helps you underwrite deals realistically, can make financing introductions, and structures offers with financing certainty in mind — so the deal you win is one you can actually close.