Commercial Financing Glossary

Plain-language definitions of the terms that come up most often when financing commercial real estate in Nova Scotia — from DSCR and loan-to-value to CMHC MLI Select, construction draws, and takeout financing. Each is written to answer the question directly.

Amortization: The period over which a loan is scheduled to be fully repaid. Longer amortization lowers the annual payment, which raises DSCR and can increase the supportable loan amount. Commercial amortizations commonly run 20–30 years, and up to 50 under CMHC MLI Select.
Apartment Construction Loan Program (ACLP): A separate CMHC direct-lending program (formerly the Rental Construction Financing Initiative) for new purpose-built rental construction, with a $1M minimum loan. Some projects use ACLP for the build and MLI Select-insured financing as the takeout.
Balloon payment: The large remaining principal balance due at the end of a term when the amortization is longer than the term. It is typically refinanced or paid off through a sale rather than paid in cash.
Basis point (bps): One one-hundredth of a percent (0.01%). A rate quoted at 'GoC plus 200 bps' is 2.00 percentage points above the Government of Canada bond yield. Commercial pricing and spreads are usually discussed in basis points.
Bridge financing: Short-term interim capital used to solve a timing problem — buying before a refinance, repositioning before stabilization, or covering a gap before permanent financing. It costs more than permanent debt and is repaid by a clear exit. Learn more →
Capitalization rate (cap rate): A property's NOI divided by its value or price, expressed as a percentage. Cap rates are a shorthand for how the market prices income property — lower cap rates mean higher values relative to income.
CMHC: Canada Mortgage and Housing Corporation, the federal Crown corporation that provides mortgage loan insurance for multi-unit residential properties. CMHC-insured financing carries lower risk for lenders, which translates into higher leverage and lower rates for borrowers. Learn more →
Commercial mortgage: A loan secured against income-producing or business-use real estate — apartment buildings, retail, office, industrial, or mixed-use property — rather than an owner-occupied home. Qualification is driven largely by the property's income and the borrower's covenant, not personal income alone. Learn more →
Construction draw: A staged advance of a construction loan, released as the project reaches verified milestones (e.g., foundation, framing, lock-up, completion). Interest accrues only on funds actually advanced. Learn more →
Conventional financing: Commercial financing that is not government-insured. It is typically faster and simpler than CMHC-insured financing but offers lower leverage and higher rates. Learn more →
Cost-to-complete: The lender's running estimate of the money still required to finish a project. It governs whether a construction loan stays 'in balance' — the remaining loan plus borrower equity must always cover the cost to complete.
Covenant: In lending, the borrower's financial strength and credibility (the 'covenant'); also, specific conditions in a loan agreement the borrower must maintain, such as a minimum DSCR.
Debt service coverage ratio (DSCR): NOI divided by annual mortgage payments. A DSCR of 1.25 means the property earns 25% more than it needs to cover the loan. Most commercial lenders require a minimum around 1.20–1.30×, and DSCR often caps the loan before loan-to-value does. Learn more →
Debt yield: NOI divided by the loan amount, expressed as a percentage. Lenders use debt yield as a leverage-independent measure of risk — it doesn't move with interest rates or amortization the way DSCR does.
Environmental site assessment (ESA): A study of a property's environmental condition. A Phase I ESA reviews history and records for potential contamination; a Phase II involves physical testing. Lenders require ESAs on many commercial and industrial deals before funding.
Estoppel certificate: A signed statement from a tenant confirming the key terms of their lease — rent, term, deposits, and that no disputes exist. Lenders and buyers use estoppels to verify the income a property actually produces.
Global DSCR: A debt-service coverage ratio calculated across all of a borrower's properties and obligations together, rather than a single property. Lenders use it to assess borrowers with multiple assets and loans.
Interest reserve: Funds set aside within a construction loan to cover interest payments during the build, before the property produces income. It is drawn down like any other budget line.
Interest-only: A payment structure where the borrower pays only interest for a set period, with no principal reduction. Common during construction and lease-up, when a property isn't yet generating stabilized income.
Lease-up: The period during which a new or repositioned building fills with tenants toward stabilized occupancy. Income is still ramping, so lease-up is often financed with interest-only or bridge structures.
Loan-to-cost (LTC): The loan as a percentage of a project's total cost (land plus hard and soft construction costs). Used on construction and development deals; CMHC MLI Select can reach up to 95% loan-to-cost on high-scoring rental projects. Learn more →
Loan-to-value (LTV): The loan amount as a percentage of the property's appraised value. Conventional commercial financing commonly tops out around 65–75% LTV, which is why commercial down payments run higher than residential. Learn more →
Mezzanine financing: Subordinate debt that sits between senior mortgage debt and equity in the capital stack. It carries higher rates because it is repaid only after the senior lender, and is used to fill a gap between the senior loan and the borrower's equity.
MLI Select: A CMHC mortgage-insurance program for multi-unit residential (5+ units) that awards points for affordability, energy efficiency, and accessibility. Higher scores unlock up to 95% loan-to-cost, amortizations up to 50 years, and reduced premiums. Learn more →
Net operating income (NOI): A property's rental income after operating expenses — property taxes, insurance, management, maintenance, utilities, and a vacancy allowance — but before mortgage payments. NOI is the starting point for both valuation and loan sizing. Learn more →
Personal guarantee: A borrower's personal promise to repay a loan made to a corporation or partnership, allowing the lender recourse beyond the property and the borrowing entity.
Preferred equity: An equity investment that is paid a fixed or priority return ahead of common equity. Like mezzanine debt, it fills the gap between senior financing and the sponsor's own capital, but is structured as ownership rather than a loan.
Prepayment penalty: A fee charged for paying off a mortgage before the end of its term. Commercial penalties are often structured as yield maintenance or a set number of months' interest, and can be significant on fixed-rate loans.
Pro forma: A forward-looking projection of a property's income and expenses — for example, after a renovation or lease-up. Lenders scrutinize pro forma assumptions closely because financing based on projected rather than actual income carries more risk.
Recourse vs. non-recourse: Recourse financing lets the lender pursue the borrower's other assets if the property doesn't cover the debt; non-recourse limits the lender to the property itself. CMHC MLI Select can offer limited recourse at the top points tier.
Rent roll: A schedule of every unit in a property showing tenant, lease term, and rent. Lenders use the rent roll to verify income and build the NOI that sizes the loan.
Spread over Government of Canada bonds: How commercial rates are typically quoted: a margin (spread) added to the yield on a Government of Canada bond of matching term. When bond yields move, so does the base for commercial pricing. Learn more →
Stabilization: The point at which a property reaches its expected, sustained occupancy and income. Stabilization is usually the trigger to move from construction or bridge financing into a permanent takeout mortgage.
Takeout financing: The permanent mortgage that repays ('takes out') a construction or bridge loan once a project is complete and stabilized. Lenders usually want a credible takeout in place before advancing construction funds. Learn more →
Term: The length of the current mortgage contract (its rate and conditions), distinct from amortization. A commercial mortgage might have a 5-year term within a 25-year amortization, after which it renews or is refinanced.
Vendor take-back (VTB): Financing provided by the property seller, who 'takes back' a mortgage for part of the purchase price. A VTB can bridge a gap between the buyer's financing and the price, often as a second mortgage.