Commercial Mortgages

The concept of a commercial mortgage is similar to the one found on a residential property.  The former involves a loan whereby the collateral which secures repayment is in most cases, a commercial type of asset such as a commercial building, business real estate, or an investment property. 

Individuals and businesses, including partnerships, corporations and/or limited liability companies generally obtain mortgages whereby commercial type transactions exist.  Lenders, in most cases, still assess the credit rating of the individuals or creditworthiness of a business in determining qualification for a commercial mortgage, as well as for what amount and interest rate.  In the vast majority of cases, interest rates on commercial mortgages are higher than interest rates on residential mortgages with the same term.

In many cases, lenders of commercial mortgages, based on the asset and mortgage application have a desire to obtain personal guarantees from the owner or owners of the partnership or corporation. 

Commercial mortgages are required by many individuals with both common and unique circumstances.  In most cases, lenders require appraisals on properties for commercial mortgages; mortgage agents, mortgage brokers and financial institutions usually charge upfront fees to the borrowers.  

The most important criterion a commercial lender looks at is the actual property or asset itself.

Additional items looked at when funding a commercial mortgage include:

  • Credit worthiness of the person or company seeking financing
  • Credit history of the individuals guaranteeing payment of the mortgage
  • The Debt Service Ratios
  • Ratios of cash to loan payments
  • Loan-to-Value ratios
  • Existing stability and profitability of the person or company
  • Determine if there are any additional circumstances associated with the potential borrower
  • Business plans for corporations and in some cases financial projections

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April 27, 2017

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