Commercial Mortgage Loan

One kind of financing that many business owners can take of is a commercial mortgage loan. A commercial mortgage loan is a line of credit secured by a piece of real estate that the business owns.

A commercial mortgage loan is a mortgage that the business owner takes out on property. Like any other mortgage it is secured by the property. The borrower pays the mortgage off in a series of payments that consist of a portion of the principal and an interest rate.

The interest rate is how the lender makes money in a mortgage. The interest is a charge that is added to the mortgage payment so the lender can cover its costs and make a profit on the deal. Interest rates are usually based upon the interest rate determined by the market with a charge added by the lender.

How Much Can You Borrow

The amount of a commercial loan a business can get is determined by the amount of equity that the business has in its property. Equity is the difference between the value of the property and the principal of the mortgage on the property.

If a property is mortgaged for $500,000 but is worth $750,000 the property owner has $250,000 in equity available. Commercial mortgage loans can be used as lines of credit for business expansion, to cover operating costs or to purchase equipment and inventory.

Advantages of Commercial Mortgage Loans

The big advantage to a commercial mortgage loan is that it is a line of credit that is not based on the business’s cash flow or business model. This means that business might be able to get a commercial mortgage loan even if it is losing money or facing other difficulties.

Commercial mortgage loans can help businesses survive tough economic times or make expansion possible. These loans maybe the only kind of financing available to new businesses, speculative businesses and businesses with bad credit histories.

Where to Get Commercial Mortgage Loans

One drawback to commercial mortgage loans is that many businesses won’t be able to get them from traditional banks. Instead these businesses will have to go to online lenders or third party lenders.

Online and third party lenders often charge much higher interest rates than regular banks. They may also force a business to take out a different or nontraditional kind of loan with a high interest rate. For example a mortgage with a floating interest rate.

Risks from Commercial Mortgage Loan

The biggest risk from a commercial mortgage loan is an obvious one, by increasing the amount of debt owed on a piece of property a business owner increases the risk of foreclosure. This means that business owners should only take out these loans if they believe they will have the cash flow to pay them off.

Another risk of these loans is that they will tie up future cash flow. Money that could be spent to cover operating costs or expansion will have to be spent on mortgage payments instead. This means that the business could have less money available to cover the cost of operations.

Only businesses that plan to stay in operation for a long period of time should take out commercial mortgage loans. Businesses with cash flow problems should explore other sources of financing.