how hard is it to get financing with a new corporation in canada?

Question

I've been reading quite a bit about corporation vs personal ownership in canada, and i think corporation makes a lot of sense, especially because i plan on expanding eventually to 100+ doors. the corporation just seems like a much better deal for paying as little tax as possible.

however, i'm concerned that starting out i won't be able to get any loans, because my corporation will be new with no credit history. i plan on starting with tri/quad/quintuplexes and then working up to larger buildings. does anyone know if it will be difficult to find lenders for these types of buildings as a corporation in canada? my personal credit history is quite good, and i have mid-range personal income (60-90k).

thanks

Roy Cleeves · Answer

I have property both in personal name and corporation. The advantage of a corporation is that you pay fewer taxes and you can pass the corporation on to the kids once you pass away without having to sell or pay any estate taxes or land transfer taxes.The lenders have approved my loans for my corporation based upon me personally guaranteeing the loans. Once my corporation starts to make enough money on its own then it can be the guarantor without me.And if you buy a bigger complex such that it is deemed a commercial sale rather than residential - then they just look at the deal instead of you.

Chris Habets · Answer

I'm in mobile but the short answer is you'll guarantee personally the first loans.

Jacob Perez · Answer

@Roy Cleeves is bang-on, if you're looking at a property 4-units or less, you'll be personally guaranteeing the property with your personal income should the corp have no history. In this event it will show up on your personal credit bureau & impact your personal borrowing.

Jason Gaunce · Answer

yes I think it will be somewhat easy to build a credit history, from what I've learn and been told the first year is the hardest and if you show your Corp has income and you are very good at paying your bills you will be able to get loans through the bank. I wouldn't expect to get 500K after the first year but maybe 60K-80K depending on your finances. We bought a 30K duplex used savings and personal line of credit, putting 25K into it and then going to get a mortgage on it, I'm going to try around 9 months but don't expect any approval until 12 months and I have run this by 2 banks about getting refinanced for 72K with a 90K evaluations and they both said as long as the next year goes good it should be no problem. They could be blowing smoke to get me to bank with them but it gave us hope.

Ade Babasola · Answer

Hi Russell,I am currently going through similar process as I am venturing into multifamily real estate investing through a syndication group. We are in the process of registering a corporation. You will either guarantee the loan personally or get a sponsor to guarantee it. If buying 8 plus units property, this is considered a commercial property. Commercial loan doesn’t depend on your credit score. It’s based on the financials of the property. Hope this helps.Cheers,Ade

Jason Gaunce · Answer

My fiance and I recently opened a corporation in NB Canada and I was told by the bank that they use the income of the property would be what determines if we will get the mortgage, so we got them to see what pre-approval we could get. We got denied any loans because of our debt ratio, which I knew was high because I am on disability. So they take your income and credit number to get approval. We opened an account at Scotiabank and they have a Visa debit bank card that we can start building our businesses credit, we start with a $1000 limit and it increases with use and payment.

Julie Toh · Answer

Account Closed are you setting up a holding co or an operating co? Lenders will finance real estate that will be held in a holding company, not in an operating company.

Account Closed · Answer

interesting info, thanks. what is your experience (if any) with bringing in external investors through your corporation vs personal? also, what do you see as advantages for owning property in your own name vs as a corporation?

Account Closed · Answer

Interesting, good to see a real-life example of BRRR (assuming they actually refinance you, haha). have you thought about using a mortgage broker instead of working with the bank directly?

Account Closed · Answer

thanks for the info. it sounds like they want to see your corporation build up a credit history before they approve any loans. do you think you will eventually be able to buy only in the name of the corp (instead of using personal guarantee) once you have built up a decent-sized portfolio?