When an individual considers a mortgage loan, he/she usually thinks of mortgage loans given to residential home owners. However, business owners may need to obtain commercial property in order to effectively operate their businesses, and in order to achieve this, they may be required to obtain commercial mortgage loans.
Commercial mortgage loans work very much like residential mortgage loans. A lender will provide business owners with commercial mortgage loans, using real estate, or the property obtained, as collateral to ensure repayment. The primary difference between a commercial and residential mortgage is the property that is obtained and used as collateral. In most instances, a commercial mortgage will not be acquired by an individual, but by an entire business.
In cases of commercial mortgages, it can be more difficult for a lender to determine the borrowers' creditworthiness. This is because multiple individuals or a single large entity is involved. Like with residential property, a business will be required to make regular mortgage payments to the lender. Usually, a business will continue making regular payments over an extended period of time.
The repayment period may be 20 years, 30 years, or a different duration specified by the lender. In some instances, commercial mortgage loans will require balloon payments, meaning that the business must repay the loan in full after a certain period of time. If a business defaults on commercial mortgage, it is likely that the lender will seize the collateral, but will be unable to pursue further action against the borrower.