Commercial Mortgage Loans

A secured loan where property being purchased or renovated is utilized for commercial purposes is known as a commercial mortgage. Commercial mortgage loans work in the same manner as a standard mortgage transaction.

Why Obtained?

Businesses Use Commercial Mortgage Loans to

  1. buy new premises
  2. extend premises already in use
  3. develop property as a part of business expansion program
  4. develop property to increase sale value to generate funds for the business
  5. invest money in residential and commercial properties as part of business operations

Important Points That Lenders Consider

An individual borrower's credit score is the most important factor that helps the lender decide upon the loan. Commercial mortgage loan providers use internal credit rating system along with other important factors like:

  1. Debt Equity Ratio

A ratio of 1:1 indicates that the business has borrowed a sum equal to the total equity invested by owners. Providers of commercial mortgage loans prefer a low ratio.

  1. Debt Service Coverage Ratio

Ratio of net business income against the total repayment on the mortgage. Ratio in excess of 1.20 is considered favorable for commercial mortgage loans.

  1. Business Profile

This is checked to ensure the business is steady and legal and does not involve unacceptable risk for provider of commercial mortgage loans.

  1. Details of property offered as collateral

Commercial mortgage loans are secured against the property involved in the transaction. The value of the property must be sufficient to secure risk of lenders offering commercial mortgage loans

  1. Financial Statements of the Business

These help lenders assess risk better. It also helps determine patterns of growth of business over a specific period.

Sources Of Commercial Mortgage Loans

These Loans Are Offered By

  1. Commercial banks

Traditional options like banks have a conservative approach towards such loans. Procedural formalities are far more than those involved in personal loans. Suitable option for text book cases where there is no scope for any complications.

  1. Mortgage companies

These are specialized sources of commercial mortgage loans. Such lenders have a high risk bearing capacity as compared to commercial banks but are more expensive as compared to banks.

  1. Private lenders

Flexible, versatile and propensity to absorb high risks, such lenders are most suitable for non standard commercial mortgage loans. Such lenders charge the highest interest rates but offer a lot of flexibility in terms of duration, amount and repayment norms of the commercial mortgage loan.