Commercial Mortgage Loans – An Option for Your Business?

Financial agencies secure two main types of loans; secured and unsecured ones. For a secured loan, a borrower has to provide collateral which reduces the risk that the lender is taking. The collateral could be a real estate, land or a house. When you use property or real estate to secure a loan, then it’s categorized as a mortgage loan. Unsecured loans usually have a shorter repayment time period and higher interest rates because they are mostly considered high risk.

About Commercial Mortgage Loans

The main difference between an ordinary loan and a commercial mortgage loan is that the latter uses a residential property for security while commercial mortgage loan uses business property, real estate or commercial property.

There are many occasions that could call for the use of a commercial mortgage loan. If you need a new office to expand your business or need to build a factory or need to buy more land to build more offices, you can take this loan from or other lenders offering this type of loan.

Only commercial establishments like partnerships or corporate or businesses are eligible to apply for commercial mortgage loans. Unlike with individual loans where credit ratings (from Experian or Equifax) can be used to assess the eligibility of an applicant, it is more challenging determining the eligibility for a commercial mortgage loan.

Drawbacks of Commercial Mortgage Loans

The main challenge with commercial mortgage loans is that they don’t give an alternative solution for recovering debt case a borrower defaults. Because of the different restrictions encased in certain enactments and statutes, the only way a lender like can recover their money is through liquidation of the collateral. Due to this, many lenders today make an agreement beforehand that in case of a default the loan can be repaid from other sources and therefore repayment doesn’t just depend on the collateral being liquidated.

Terms of repayment for this type of loan can go up to twenty or thirty years. The duration in which complete payment must be made is called the balloon tenure.