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Commercial mortgage loans A commercial mortgage loan is utilized by businesses in order to obtain additional capital. It is different from other types of loans because the collateral is a real estate. However, not all real estate properties can be accepted as collateral. For example, residential homes cannot become collaterals for commercial mortgage loans. The real estate properties that are received as collaterals are commercial buildings and other properties of similar nature. Aside from the limitations on the type of real estate that can be used as collateral, there are two other major identifying characteristics of commercial mortgage loans. First, it can be obtained by a business entity, and second, it is considered as “nonrecourse.” Since the purpose of commercial mortgage loans is to augment the capital of a business, it is not limited to sole proprietorship businesses in which the borrower is a person. The commercial mortgage loans can be acquired by a partnership, by a corporation, and by any other business entity. Due to this, the decision to approve a loan application will not depend on the credit rating of the businessmen but on the stability and capability of the business. The processing of commercial mortgage loan applications takes a relatively longer amount of time than person loans. A nonrecourse loan is a secured loan in which the borrower is not personally liable for its payment. That is, if the loan could not be paid, the collateral is taken by the lender. In the case of commercial mortgage loans, the real estate property that was used as collateral will be possessed by the lender when the business entity could not make the agreed payments. The value of the real estate property, due to market forces will fluctuate or the value can go up or down. The lender, of course, will anticipate a slowdown in the real estate market and will approve loan applications that have the collateral’s value significantly higher than the proposed loan. This is called over-collateralization and the borrower stands to lose greater if the debt is not paid. A parallel setup can be found in second mortgage loans. |