The client was not one business but two. A multi-disciplinary health clinic and a specialist movement and training studio, owned by two different couples, each renting its own premises in the Fraser Valley. They found a commercial strata unit large enough to hold both, agreed to buy it together through a holding company incorporated for the purpose, and to divide the space in two.
It is a sensible idea and an awkward one to finance. Lenders are built to assess a borrower. Here the borrower was a company incorporated weeks earlier with no history, no operations and no income of its own, which would own a building whose only revenue was rent from two unrelated operating businesses. Those two had different shareholders, different accountants, different year ends and different banks. Neither had bought commercial property before, and neither had taken the idea to the bank it already used.
The only honest way to underwrite that is on the combined picture, because that is what actually services the debt. The holding company's mortgage would be paid from rent, the rent would be paid from two operating businesses, and the question a lender needs answered is whether those two together generate enough to cover everything with room to spare.
So that is how we built the request. One package covering the purchase mortgage for the holding company and a full set of facilities for each operating business, with debt service tested across all three entities as a group rather than one at a time, and with the trading history of both businesses laid out to carry a holding company that had none.
Additional leverage: a chartered bank approved $1,585,000 in total. The mortgage came in at $1,350,000, slightly above the 75% of the purchase price the engagement had set out to secure. Alongside it each business received a term loan toward the cost of fitting out its half of the space, an operating line and a corporate credit card, so neither had to fund its leasehold improvements out of working capital at the same time as taking on a mortgage.
Both businesses also moved their day-to-day banking across to the new lender. That is the trade that made the combined covenant workable: a bank will look at a group it can see in full far more readily than at a set of relationships it holds a fragment of.
If you are looking at premises with another business and wondering whether a lender will entertain it, the structure can be made to work. What it takes is presenting the group as a group from the first conversation. Start with a 15-minute commercial debt review and we will benchmark your pricing, covenants, guarantees, collateral and available leverage against what we are seeing in the market right now.
