Buying the building your business operates from
The mechanics of an owner occupied file: what the lender reviews, how the structure is usually put together, and the federal program that only applies here.
The short answer
When your own business occupies the building, the lender underwrites the business as well as the property, because the rent paying the mortgage is rent you pay yourself. That changes what they ask for, and it opens up a government backed option that is not available to an investor.
- The lender reviews your business financials, not just a rent roll.
- Most files are structured with a holding company owning the property and your operating company leasing it.
- The lease between them has to be at market rent, because a lender will not accept a rent you set yourself.
- A small business buying its own premises may qualify for the federal Canada Small Business Financing Program.
Why lenders treat this differently
On an investment property the lender underwrites strangers. Leases, tenant covenants and a rent roll tell it where the payment comes from. An owner occupied building produces no third party income at all, so there is nothing to read but you. The covenant is the business.
In practice that means the operating company's financial statements sit at the centre of the file, alongside interim figures, corporate tax filings, a personal net worth statement and, in almost every case, a personal guarantee. The lender is testing whether the business generates enough cash to service the mortgage after it pays everything else it owes, and whether it has survived a slow year before.
That cuts both ways. A strong operating business can carry a building an investor could not, because the lender is no longer guessing at whether the space stays leased. It is a different kind of comfort from a rent roll, and on the right file it is a better one.
Holdco and opco, and the lease between them
The usual shape is two companies. A holding company owns the real estate and borrows the mortgage. Your operating company leases the space from it and pays rent. The mortgage is typically guaranteed by the operating company and by you personally, so the lender reaches all three.
The structure exists to separate the building from the trading risk of the business, and to make a future sale, a refinance or a handover to the next generation simpler, because the property can move independently of the operations.
The intercompany lease is the part borrowers underestimate. It has to be at market rent, in writing, and supported by evidence of comparable rents, because a lender will not size a loan off a rent you invented. Set it too high and the lender discounts it. Set it too low and the coverage on the property looks thin. Neither helps.
Say this part plainly: the structure has tax and legal consequences that outlast the mortgage. It belongs with your accountant and your lawyer, not with a mortgage broker, and it is far cheaper to decide before the offer than to unwind afterwards.
The Canada Small Business Financing Program
This is a federal program delivered through participating lenders, not by CCM directly. Businesses operating for profit in Canada with gross annual revenues of 10 million dollars or less are eligible. The maximum for a borrower is 1.15 million dollars, of which up to 1 million dollars can be a term loan for purchasing or improving land and buildings used for commercial purposes, with no more than 500,000 dollars of that available for equipment and leasehold improvements and no more than 150,000 dollars for intangible assets and working capital.
The property has to be used by the business. That single condition is exactly why the program matters for owner occupied purchases and does nothing for investment property. If you are buying a building to lease to strangers, this is not a route open to you.
Program terms are set by the federal government and can change, and eligibility is confirmed by the lender rather than by us. Where it fits, it is worth raising early, because it changes which lender you approach before anything else about the file is settled.
When buying is the wrong answer
Three cases where we say so. If the business needs its capital for growth, a down payment locked into a building is capital that cannot buy equipment, inventory or people, and the return inside a growing business is usually higher than the return on the real estate.
If the space will not suit you in three years, buying is an expensive way to find out. Selling commercial property takes time and costs money at both ends, and outgrowing a building you own is a harder problem than outgrowing one you lease.
And if the price only works on rent you hope to charge later, the deal is being justified by a number that does not exist yet. Leasing is the better answer in all three. Where the capital question is the real one, the business expansion financing page covers the other ways owners fund growth.
Owner occupied mechanics.
Related reading
Buying premises for your business?
Send the listing and two years of business financial statements. We will tell you how the file is best structured and which lenders fit it.