Understanding the Nuances of Commercial Mortgages

The word “mortgage” is pretty familiar to any home owner. Then what are commercial mortgages? This is a loan which you can get having a piece of land or real estate as a collateral. This is the method to get the loan repaid. It is like a usual mortgage on a residence but the difference lies in what is being offered as collateral. There are two major differences between a residential mortgage and a commercial one.The collateral in the case of the latter is a commercial business property and not any residence property.
Secondly the applicants of a commercial mortgage are not individuals but companies, partnerships, or even corporations. This is where the intricate nature of this kind of mortgage lies. It is far more difficult to judge how suitable a company is for a mortgage than judging an individual. Assessing the credit history of an entire corporation is far more complex than that of an individual.Kinds of a Commercial MortgageThere are two kinds of commercial mortgages that can be offered to the applicants:One is nonrecourse mortgage. With this kind of a loan, if your company fails to pay back the mortgage, the real estate as collateral will be seized. But if there is any amount still left to be paid over, the creditor cannot pursue the borrower for the remaining amount.
Usually the mortgage is such that even if the foreclosed property fails to yield the full amount of the loan then the borrower will still have to make the remaining payment.Why are commercial mortgages used?This form of commercial loans is used by companies to get more real estate through such methods of acquisition.To make an extension of an already existing business property.
It is also a form of investment.Eligibility Criteria The company applying for the commercial mortgage will have to satisfy the eligibility criteria to get a good loan. Firstly, there is a cash ratio which has to be fulfilled. Also, the company has to have a really good credit history. With bad credit you don’t get a good loan that is the rule. Thus the loan to value ratio has to be a really good one.The bank which is giving the loan will also see whether the business is currently stable or not. It also has to have a current profitable run. The bank might ask to see the financial reports and also the financial aims and goals that the company has in mind.Basically the bank needs to be convinced about the fact that your company will be able to pay the loan amounts. There are quite a few kinds of businesses that a bank will never lend to. This is a very tricky area and requires professional help. In case your company is planning to get a commercial mortgage, seek some specialised help.