How to Buy Commercial Property with 10%-20% Down in Canada (Legally)

# How to Buy Commercial Property with 10%-20% Down in Canada (Legally)

The most common barrier to entering commercial real estate isn't finding a good property - it's coming up with the down payment. Conventional commercial mortgages typically require 25–35% down, meaning a $2 million property could require $500,000–$700,000 in equity.

But there are legitimate, well-established financing structures that can reduce your initial capital requirement to as low as 5–20%. Here's how experienced Canadian investors do it - legally and strategically.

CMHC MLI Select: As Low as 5% Down on Multi-Family

The Canada Mortgage and Housing Corporation's MLI Select program is the single most powerful tool for reducing down payments on multi-family properties (5+ residential units).

Under MLI Select, qualifying properties can obtain CMHC-insured mortgage financing with down payments as low as 5% - the same level as a first-time residential homebuyer.

Source: CMHC, MLI Select Program Details, 2024

How It Works

CMHC insures the mortgage, which means the lender's risk is dramatically reduced. In exchange, borrowers pay an insurance premium (added to the mortgage) and must meet CMHC's underwriting criteria.

Source: CMHC, MLI Select Scoring Criteria and Premium Structure, 2024

To qualify for the lowest down payments, properties need to score well on CMHC's points system covering:

• Energy efficiency: Properties meeting energy performance targets
• Accessibility: Units designed for accessibility
• Affordability: Rents at or below median market rent for the area

This program is ideal for purpose-built rental apartments, particularly new construction or recently renovated buildings in areas with strong rental demand. It's one of the best-kept secrets in Canadian commercial real estate.

Learn more about our commercial mortgage purchasing options.

Vendor Take-Back (VTB) Mortgages

A vendor take-back mortgage is exactly what it sounds like: the seller acts as a lender for a portion of the purchase price, allowing the buyer to reduce the amount of cash needed at closing.

Typical VTB Structure

• First mortgage: 65–75% LTV from a bank or institutional lender
• VTB second mortgage: 10–15% of purchase price from the seller
• Buyer's equity: 10–20% down

Example:

The VTB portion typically carries a higher interest rate than the first mortgage (often 6–10%) and a shorter term (2–5 years), giving the buyer time to build equity and refinance the VTB away.

Why Sellers Agree to VTBs

• Faster sale: Reduces the buyer pool's down payment barrier
• Interest income: Earns a return on the retained portion
• Tax deferral: Spreads the capital gain over multiple years
• Higher price: Sellers can often negotiate a higher purchase price when offering a VTB

Source: Canada Revenue Agency, Capital Gains and Reserve Provisions, Income Tax Act s. 40(1)

Important: Most institutional first-mortgage lenders require disclosure and approval of VTB second mortgages. Always be transparent with your lender about the full financing structure.

Canada Small Business Financing Program (CSBFP)

The CSBFP is a federal government-backed loan program that helps small businesses acquire commercial real estate with as little as 10% down.

Source: Innovation, Science and Economic Development Canada, CSBFP Program Guide, 2024

Key Details

The CSBFP is delivered through participating banks and credit unions. The government guarantees 85% of the loan, which significantly reduces the lender's risk.

This is an excellent option for owner-occupied small commercial properties - think retail shops, restaurants, professional offices, and small industrial units. Read our full CSBFP guide for a complete breakdown.

Partner Equity and Joint Ventures

Another legitimate strategy is bringing in a capital partner to reduce your personal equity requirement. Common structures include:

• Equity joint venture: A partner contributes capital while you contribute expertise (finding the deal, managing the property, arranging financing)
• Limited partnership: Passive investors provide equity in exchange for a share of cash flow and appreciation
• Co-ownership: Two or more buyers purchase together, splitting the down payment

Typical Split

The exact split varies by deal and relationship, but the principle is the same: your expertise has value, and not all of the equity needs to come from your bank account.

Caution: Joint ventures involving securities may require compliance with provincial securities regulations. Always consult a lawyer before structuring a JV.

Secondary Financing and Mezzanine Debt

For larger commercial deals, mezzanine financing can bridge the gap between the first mortgage and your available equity.

Mezzanine debt sits behind the first mortgage but ahead of equity in the capital stack. It's more expensive than first-mortgage debt (typically 8–14%) but cheaper than giving up equity.

Private lenders are often the best source for mezzanine debt on commercial properties, offering faster approvals and more flexible terms than institutional sources.

Creative Structures: Combining Multiple Tools

The most effective low-down-payment strategies often combine multiple tools. Here's a real-world example:

Scenario: Purchasing a $1.5 million mixed-use building

Total buyer equity required: $275,000 instead of the conventional $450,000–$525,000.

The key is ensuring the combined debt service doesn't push the DSCR below lender thresholds. Run the numbers carefully - and conservatively.

What Won't Work: Strategies to Avoid

Not every low-down-payment strategy is legitimate:

• Undisclosed secondary financing: Hiding a second mortgage from your first-mortgage lender is fraud
• Inflated appraisals: Artificially inflating the property value to reduce the effective LTV is illegal
• Gift letters for commercial purchases: Unlike residential, "gifts" toward commercial down payments are heavily scrutinized
• Personal unsecured debt for down payment: Using lines of credit or credit cards for your equity contribution will show up in your debt ratios and may disqualify you

Source: OSFI, Guideline B-20, Principles for Sound Residential Mortgage Underwriting, 2023

Always be transparent with your lender about the source of your down payment. The deal should work on its merits.

The Bottom Line

You don't need 35% down to get into Canadian commercial real estate. With the right strategy and structure, you can acquire income-producing commercial property with 10–20% of your own capital - or even less with CMHC MLI Select.

The key is matching the right financing structure to the right property type:

• Multi-family apartment: CMHC MLI Select (5–15% down)
• Small owner-occupied commercial: CSBFP (10% down)
• Any income-producing property: VTB second mortgage (15–20% total equity)
• Larger deals: JV equity partnership or mezzanine financing

Ready to structure a low-down-payment commercial purchase? Explore our purchasing options or learn about private financing solutions for bridging the equity gap.

References

• CMHC, MLI Select: https://www.cmhc-schl.gc.ca/professionals/project-funding-and-mortgage-financing/mortgage-loan-insurance/mli-select
• CMHC, Multi-Unit Mortgage Loan Insurance Premiums: https://www.cmhc-schl.gc.ca/professionals/project-funding-and-mortgage-financing/mortgage-loan-insurance/mortgage-loan-insurance-premiums
• Innovation Canada, Canada Small Business Financing Program: https://ised-isde.canada.ca/site/canada-small-business-financing-program/en
• OSFI Guideline B-20: https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures
• Canada Revenue Agency, Capital Gains Reserves: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/capital-gains-reserve.html