Commercial Mortgage Lending

Most business owners will have to venture into the world of commercial mortgage lending sooner or later. The only way for a business to buy property is usually with a commercial mortgage.

Commercial mortgage lending works much like the residential mortgage lending that most of us maybe familiar with. A commercial mortgage is a loan that a business owner uses to finance the purchase of a piece of real estate. The lender then holds the deed to the property as collateral to secure the loan.

As with a residential mortgage, the commercial mortgage is paid off with a series of payments. The payments usually consist of the interest on the mortgage and a portion of the principal of the mortgage. If the borrower doesn’t make the payments, the lender can recover the money they invested in the loan by foreclosing on the property.

Commercial Mortgage Interest

Commercial mortgage interest is generally much higher than residential mortgage interest. This is so because lenders consider commercial mortgages riskier than residential mortgages.

The interest is how the lender makes a profit on a mortgage and covers their costs. Commercial mortgage interest is usually determined by the rate the lender pays for the money they lend to the borrower plus an added rate for profit. Commercial mortgage interest is often much more volatile than residential mortgage interest because it is affected by the economy.

Some commercial mortgages have even higher interest rates because they have floating interest rates. Floating interest rates are based upon the market rate for interest which means the interest on the mortgage can change with every payment. This means that payment amounts can be different every month.

Commercial Mortgage Lenders

The majority of commercial mortgages in the United States are issued by banks and third party lenders. Many banks issue commercial mortgages because they are a high profit area of business.

Bank mortgages can be hard to get because banking is a conservative and heavily regulated business. Most banks will only issue mortgages to established businesses with good credit histories.

Third party lenders are companies that specialize in commercial mortgage lending. It is usually easier to get a mortgage from a third party lender than from a bank. A third party lender may charge higher interest rates and fees on its mortgage. Most of the commercial mortgages available online come from third party lenders.

What to Look For in a Commercial Mortgage

A business owner should try to get the best terms and interest rate possible on a commercial mortgage. The best interest rate is usually the lowest rate so an entrepreneur should try to get the lowest interest rate possible.

The best terms on a mortgage are usually traditional 30 and 40 year mortgages from banks. Unfortunately it is often hard for new businesses, speculative businesses, businesses with bad credit and businesses in certain areas to get these mortgages.

This means that many businesses will have to settle for other mortgages such as floating interest mortgages from third party lenders. Even with those mortgages it should be possible for a business owner to shop around and get a really good deal on a commercial mortgage.