How Much Down Payment Do You Need for Commercial Property in Canada?

Commercial property ownership is becoming increasingly attractive to Canadian entrepreneurs, investors, and small business owners who are looking to secure long-term assets and generate income. 

Owning this real estate opens the door for stability, growth, and control over business premises. 

One of the biggest hurdles to entering the market is the down payment. 

Unlike residential mortgages, where lower down payment options are more common, commercial mortgages require a larger upfront investment. 

Understanding the expectations is key to preparing to purchase commercial real estate. 

In this article, we'll break down how much payment is usually required for commercial properties in Canada. 

You'll learn about the general range lenders expect, what influences the amount you need to put down, and what steps you can take to strengthen your application.

What is a Commercial Mortgage? 

A commercial mortgage is a loan used to finance the purchase, development, or refinancing of real estate intended for business or investment purposes.

It is similar to a residential mortgage, but the terms, risks, and qualifying criteria are more complex and rigorous.

Commercial mortgages are used for a wide range of property types, including:

• Office buildings 
• Retail storefronts 
• Industrial facilities 
• Warehouses
• Hotels 
• Multi-residential properties with five or more units 

These loans can be taken out by business owners looking to operate from the premises, or by investors planning to lease the space to tenants for income.

Typical Down Payment 

Most lenders require a down payment of 20% to 50% of the property's purchase price.

Things such as the borrower's credit, business history, and the type and location of the property all influence where your down payment falls within this range.

Owner-occupied commercial properties may qualify for more favorable terms, sometimes with a lower required down payment.

This requirement is closely tied to what's known as the loan-to-value (LTV) ratio.

The LTV is the percentage of the property's appraised value that the lender is willing to finance.

For example, a 30% down payment means the lender is covering the remaining 70%, making it a 70% LTV.

Most commercial lenders cap LTV at 80%, meaning a 20% minimum down payment is typical at best.

Because commercial real estate carries more variables and risk, lenders require lower LTVs, and therefore, higher down payments to protect their investment.

Borrowers should be prepared to meet the downpayment requirement and demonstrate strong financials and a solid business plan.

What Affects the Down Payment Requirements?

The exact down payment you'll need isn't fixed, it depends on several things that lenders evaluate to determine risk.

LTV Ratio: A lower LTV ratio means a higher down payment is required to reduce lender risk.

Cash Flow and Debt-Service Coverage (DSC): Lenders need strong cash flow and DSC ratio of at least 1.25 to be sure the loan can be comfortably repaid.

Credit History: Good credit scores signal financial reliability and can lead to lower down payment requirements.

Business Type, Age, and Stability: Established, stable businesses are seen as less risky and may qualify for smaller down payments.

Property Type, Location, and Condition: Desirable, well-maintained properties in prime locations require less money down.

Financial Documentation and Projections: Complete and credible financial records and forecasts reassure lenders and can reduce upfront costs.

Owner-Occupied vs. Investment Property: Owner-occupied properties qualify for lower down payments compared to purely investment ones.

Can You Buy Commercial Property with a Low Down Payment?

The minimum down payment for commercial property is around 20%.

Canada Mortgage and Housing Corporation (CMHC) insured mortgages for eligible multi-unit residential properties can require as little as 15% down.

In rare cases, such as owner-occupied properties with strong collateral, 0% down financing may be possible.

However, a 10% down payment is usually not realistic because lenders consider a 90% LTV ratio too risky.

Lower down payments depend heavily on the type of  property, borrower strength, and special lending programs.

CMHC-Insured Commercial Mortgages

CMHC offers mortgage loan insurance for commercial properties such as multi-unit residential buildings, licensed care homes, and retirement facilities.

This insurance helps reduce the risk for lenders, making it easier for borrowers to qualify for financing on these types of income-producing properties.

One of the benefits of CMHC-insured commercial mortgages is the ability to access LTV ratios of up to 85%, which means borrowers can secure financing with as little as 15% down payment.

These insured mortgages often come with lower interest rates compared to uninsured loans because the insurance protects lenders against default risk.

But borrowers should be aware that obtaining CMHC insurance requires paying mortgage loan insurance premiums, which add to the overall cost of the mortgage.

Still, CMHC insurance can be a valuable option for buyers looking to reduce their upfront cash requirements and improve their financial terms on eligible commercial properties.

Tips to Improve Your Chances of a Lower Down Payment

Boosting your business's cash flow and maintaining a strong DSC ratio can improve your chances of qualifying for a lower down payment.

Lenders want to see that your business generates income to comfortably cover mortgage payments, so demonstrating solid financial health is important.

Maintaining a strong credit profile, both personally and for your business, shows lenders you are a responsible borrower with a history of managing debt well.

Offering additional collateral or personal guarantees can reduce the lender's risk and increase your chances of negotiating better mortgage terms, including a smaller down payment.

Choosing an owner-occupied commercial property can also help, as lenders view these properties as lower risk in comparison to purely investment properties.

Working with an experienced mortgage broker can be invaluable because they have access to multiple lenders and can help you compare options to find the best deal suited to you.

The Application Process

You'll need to provide business and financial documents, such as CPA-reviewed financial statements and up-to-date tax filings.

Lenders need proof of business income and evidence of growth, including profit and loss statements, bank statements, and financial projections.

Details about the property you want to purchase like its condition, use, location, and a professional appraisal are important for a risk assessment.

Preparing a strong application package that highlights your financial stability, business viability, and property potential can greatly improve your chances of approval.

Regional Differences

Commercial mortgage requirements can vary across provinces in Canada.

For example, Ontario’s down payment requirements for commercial properties can range from 0% to 50%, with owner-occupied properties qualifying for lower options.

Provincial regulations, average property values, and lender preferences all influence how much you’ll need for a down payment.

You should consult local experts or brokers to understand the expectations in your region.

Buying commercial property can be a major financial move, and understanding the down payment landscape is just the beginning.

And working with professionals like mortgage brokers and financial advisors can give you a competitive edge.

Success in securing favorable terms comes down to how well you plan, present, and negotiate.

Taking a strategic approach lets you move forward with confidence to get closer to owning the commercial property that fits your goals.