It’s not just commercial properties that are owned by Companies. We often see residential properties held in corporate names too. This doesn’t have to be a deal breaker if you know what to look for. Here are 4 tips when reviewing an application from a corporate borrower:
1. The first question to ask is whether the company is just a Holding Company or if it is an Operating Company with employees, GST remittances etc. As lenders, we want the property in the name of a Holding Company so that it is free from all of the liabilities like GST and Employee Source Deductions, that relate to the operating of the business.
2. Guarantors will almost always be required. Lenders will likely want the personal guarantees of the principals of the company. In general, lenders perceive more risk in this type of lending, so the additional security will almost always be required.
3. Is the Company current and has it filed all of its annual reports? You could have a situation where title to a property is in a company name, but that company has been struck from the register of companies for failure to file annual reports. Your borrower should be able to provide this.
4. Be prepared for extra costs and time. Legal fees are typically higher for mortgages in company names as the lawyers have to do more work and the package of documents will be significantly larger than a simple residential mortgage package. Likewise the timeline will be longer both with the lender and the lawyers because of the increased number of steps that have to be completed.
Bringing these points up with your client early in the process will help set the expectations and make for a smoother and less frustrating closing.
The experienced staff at Kokanee Mortgage have the knowledge to underwrite mortgages from corporate borrowers.