More Challenges Seen For Commercial Financing

Commercial-Financing Sources quoted by the Globe say Canadian commercial financing has plunged by one third compared to last year.

The Globe’s article had various other noteworthy points:

  • A lot of the commercial financing maturing late this year and early next year was supported by mortgage-backed securities. These loans were frequently made at low rates, with little equity, and relatively few conditions.
  • This kind of financing is almost non-existent today.
  • Last year there was $18 billion of commercial financing available in Canada. This year it’s down to $12-13 billion. The shortage is due to the disappearance of commercial mortgage-backed securities, says Milton Lamb of Colliers International.
  • Construction financing has been especially hard-hit.
  • Spec builders face huge challenges in getting financed. Pre-sales mean the world, and commercial lenders are now routinely asking for 30-40% equity.
  • If you can’t get financed on a commercial project, the article suggests:
    • Taking on an equity partner
    • Selling other properties to raise cash; or,
    • Offering additional properties as collateral.
  • Every bit of equity counts. “A 60% mortgage is a lot more attractive to a lender than a 70% one,” says Lamb.

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