Commercial Property Loans Will Jump-Start Your Business
May 25th, 2010
Commercial property loans are commercial loans made which use real estate as collateral.
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 creditworthiness 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 deficiency. The general reason for this is twofold: many laws significantly prevent the creditor from going after the borrower for any deficiency, and mortgages structured for sale as bonds give a higher priority to constantly receiving some sort of income and therefore require a clause which allows the lender to take the property immediately, regardless of bankruptcy proceedings that the borrower might be going through.
Frequently, the commercial property loan is supplemented by an obligation of the borrower or a guarantee from the owner(s), which causes the debt to be payable in full even in the event that foreclosure on the mortgaged collateral does not satisfy the outstanding balance.
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