Simply defined, a commercial mortgage loan is a long-term (usually 20 years or more) loan backed by securitization of a commercial (income generating) property. Commercial real estate loans are only one area of commercial lending. About six classes of lenders provide commercial real estate loans. The best-known class of lenders who make commercial real estate loans are banks, savings banks and savings and loan companies (S & Ls).
Commercial real estate (CRE) is income-generating real estate used exclusively for non-residential commercial purposes, such as shopping centers, shopping malls, office buildings and complexes, and hotels. Financing – including the acquisition, development, and construction of these properties – is usually provided through commercial real estate loans: mortgages secured by liens on the commercial property.
Similar to mortgages, banks, and independent lenders are actively involved in commercial real estate loans. Insurance companies, pension funds, private investors and other sources, including the US Small Business Administration’s 504 Loan Program, also provide capital for commercial real estate.
Large banks are making most of the large commercial mortgage loans and respectively; small banks make most of the smaller commercial real estate loans. It is a simple concept, but it is important. You will not want to take a $ 50,000 commercial real estate loan request to a bank the size of Chase. Just as, you will not want to take a $ 50 million commercial mortgage loan request to a small bank of Any Town USA.
Another class of lenders who make commercial real estate loans are lenders. With the money of wealthy private investors or mortgage investment pools, cash lenders have made a huge impact in the commercial real estate loan arena. These commercial real estate loans are usually very expensive, but a desperate borrower can often get a commercial real estate loan from a money lender in just a few weeks.
When valuing commercial real estate loans, lenders consider the collateral of the loan; the projected income and rent rolls of the properties, the creditworthiness of the company or the principal/owner, including the financial statements of three to five years and income tax returns; and financial ratios, like the mortgage lending rate and the debt service ratio.