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Commercial Mortgage

A commercial mortgage, as the name may suggest is a loan taken against real estate. In other words, a commercial building acts as the collateral that will secure the repayment of the loan. A commercial mortgage is very similar to a mortgage taken against a residential property, only that the collateral in this case is a business or commercial building. Equally, unlike a residential mortgage that is taken by an individual, a commercial mortgage in most cases is taken by business or businesses. A commercial mortgage borrower can be an incorporated business, partnership, or a limited company. As such, the process of assessing the creditworthiness of the business will be much complicated compared to a residential mortgage.


Various commercial mortgages are non-recourse meaning that incase the borrower defaults to service the loan, the creditor is only mandated to repossess the collateral, and has no further claim on the loan borrower in case there is any deficit in the amount. The reasons behind this is dual whereby most laws today considerably protect the borrower from the creditor incase of a deficiency. Secondly, most mortgages that are structured to be sold as bonds produce a higher priority to regularly get some kind of income and thus need a clause that will allow the creditor to possess the property immediately, in spite of bankruptcy dealings that the borrower might be facing.

More often than not, the commercial mortgage is complemented by a personal guarantee from the property owner(s) or the general legal obligation of the borrower. This ensures the debt will be paid in full even if repossession on the collateral will not satisfy the existing balance.

Uses of Commercial Mortgages

Commercial mortgages are normally used for a number of purposes such as:
- Buying a site of the business
- For commercial and residential investment
- To extend the existing premises
- To develop the property in other profitable ways

How are Commercial Mortgage Loans Applied?

Majority of commercial properties are meant to be for retail, industrial or office purposes. As such, a borrower may wish to get a commercial loan to expand the facility, improve or renovate it, to acquire a commercial property or land or even to refinance an existing loan. Commercial premises are bought for various reasons – one may need a bigger premise to keep up with expansion, or one may purchase a property because it’s directly associated to a particular business such as a hotel. Commercial mortgages are normally made with a 10-year term but it can be longer. Like in any other type of secured loan, the commercial property set as collateral is normally at risk if the borrower fails to service the loan on time or defaults to repay it for whatever reasons.

Terms of a commercial mortgage

Most of commercial mortgages will expect the borrower to pay off monthly installments for the stipulated time frame. The terms of a commercial mortgage will be determined by the duration of payment (term) and amortization.

Tags: bank, collateral, credit, finance, Income, law, Legal, loan, mortgage, risk

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