Canadian Commercial Mortgages
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Situation

Your equity is in the building and your growth is not.

The balance sheet says you are worth a great deal. The bank account says you cannot fund the next step. Both are true at once, and the building is usually the bridge between them.

Halftone illustration of a multifamily apartment building.

The situation as you experience it

There is a contract you could take, a second location available, equipment that would lift capacity, or a partner who wants out. Every one of them needs cash. The business is profitable but the profit is committed, and the operating line is already doing what it was meant to do.

Meanwhile you own a building that has been quietly gaining value for years, and nobody has ever suggested it could fund any of this.

Why this happens

Equity builds silently. Every mortgage payment moves a little principal across, and in most of British Columbia values have risen on top of that, so the gap between what the building is worth and what you owe widens year after year without any decision on your part. Working capital does the opposite. It gets consumed by payroll, inventory and receivables and never accumulates the same way.

So the business ends up asset rich and cash poor, and the two sides never meet, largely because commercial real estate lending and business lending are different desks at most institutions. Your account manager on the operating side is not thinking about the building. Nobody makes the connection, so it does not get made.

What your options actually are

Refinance and take equity out. One new first mortgage replaces the old one at a higher amount and the difference comes to you. Cheapest cost of funds and the cleanest structure. It requires an appraisal, a full underwrite and legal work, so allow thirty to sixty days, and check the prepayment penalty on your existing loan first. Our refinance and equity take out page covers the sizing.

A second mortgage behind the existing first. Worth doing when the first carries a rate you should keep or a penalty that makes breaking it expensive. The second is priced higher, because it sits behind, and normally has a shorter term, but you only pay that higher rate on the new money rather than on the whole debt. The private and second mortgages page sets out the pricing and fees.

Blend or extend with the current lender. Some lenders will add new money to the existing loan at a blended rate and extend the term, avoiding a penalty and a discharge. It is the least disruptive route when it is available, and it is worth asking for before assuming you have to move.

What owners use it for. Opening or fitting out a second location, buying equipment that raises capacity, funding an inventory cycle for a contract already won, buying out a partner or family shareholder, and consolidating expensive debt such as accumulated credit lines into one secured payment at a much lower rate. That last one frequently improves cash flow on day one without any growth at all.

This is not free money

It is worth being direct about the trade. Taking equity out raises your payment immediately and keeps it raised for the whole term, so a portion of the growth this funds is already spoken for. And the security is the building, which means a business setback no longer threatens only the business. It threatens the asset you were counting on.

That is a reasonable risk when the growth is contracted or close to it: a signed customer, a location with a real lease, equipment tied to work already booked, or a consolidation where the arithmetic is provable on paper today. It is a poor risk when the growth is a forecast and the capital is being borrowed in the hope of creating demand.

If the plan sits in the second category, the honest answer is usually to wait, prove the demand at a smaller scale and come back with evidence. The equity is not going anywhere, and it will be worth more when you can support a larger and cheaper loan against it.

What we would need to look at it

The property address with your current mortgage statement, the rent roll or operating statement for the building, and a short note on what the money is for and where the repayment comes from. That is enough to tell you how much is available, what the payment becomes and whether the plan carries it.

FAQ

Expansion financing questions.

Most conventional refinances go to 65 to 75 percent of appraised value depending on the property type, less the balance you already owe. The debt service coverage test often sets the real limit before the leverage cap does, because the larger payment still has to be covered by the income.

It depends on the first mortgage. If it carries a good rate or a large prepayment penalty, a second mortgage behind it is usually cheaper overall even though the second itself is priced higher. If the first is near maturity or already expensive, a single new first is simpler and cheaper.

Conventional refinancing typically runs thirty to sixty days including appraisal, underwriting and legal work. A second mortgage can be faster, often two to four weeks, which is part of what you are paying for.

Broadly yes, though the lender will ask what it is for and the answer affects the decision. Expansion, equipment, inventory, a partner buyout and consolidating more expensive debt are all normal uses. Vague answers make underwriters cautious.

The payment rises immediately and permanently, and the property secures the debt, so a downturn in the business now puts the real estate at risk as well. That is the trade you are making, and it only makes sense when the growth being funded is reasonably certain.
Keep reading

Related situations

Commercial mortgage renewalThe natural moment to restructure and release equity.Self employed incomePresenting real earnings when growth distorts the statements.Private and second mortgagesCapital behind an existing first when speed matters.Have a broker read your dealSend the property and the numbers and get a straight answer. No fee, no credit check.

Growth waiting on capital?

Send the property address, the current mortgage statement and a recent rent roll or operating statement. We will tell you how much equity is genuinely available and what it will cost.

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