Commercial Mortgages

Commercial Mortgages are mortgages made using commercial real estate as the primary collateral to secure repayment of the loan. A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, not residential property. In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business, or limited company, so assessment of the credit quality of the business can be more complicated than is the case with residential mortgages.

Some commercial mortgages are nonrecourse, that is, that in the event of default in repayment, the creditor can only seize the collateral, but has no further claim against the borrower for any remaining shortage. However, most commercial mortgages do require personal guarantees from the principals of the business getting the mortgage. can provide commercial mortgage quotes from up to 5 commercial mortgage lenders with a single quick online application form.

Who Qualifies for Commercial Mortgages

Most banks some private financing firms offer commercial mortgages, but applicants must satisfy the lenders' criteria for qualification. The primary criteria are the debt service coverage ratio or the ratio of cash available to the required loan payments. Some lenders may accept applications where there is some poor credit history, but most commercial mortgage lenders will require a positive personal credit rating and positive looking clean business financials. Most underwriting departments will apply a loan-to-value ratio and will expect the business to invest a proportion of its own money into the purchase. This is often called “skin in the game”; showing the business and principals of the business are also willing to put funds at risk.

The lender's decision will also depend on the business' current financial strength, a commercial mortgage lender will expect stability and profitability. They may ask to see a business plan as well as long-term financial projections, to provide evidence that the business has, and will continue to have, the ability pay back the loan. Most lenders now impose restrictions on the uses of commercial properties and certain business industries may be excluded altogether. The terms of a commercial mortgage depend largely on the kind of building and property being purchased and the total risk involved in the transaction.

In recent years commercial real estate appraisals have taken a substantial drop in value in most areas of the US. This has also led to banks pulling out of commercial real estate or offering unfavorable terms on commercial mortgage deals. Until the real estate market picks up do not expect favorable building and land values when applying for these loans. At we still have many lenders looking to provide commercial mortgages, just be prepared for a very thorough application process and low building and land value appraisals.

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