Commercial mortgage loans tend to have higher interest rates and require larger down payments than residential mortgage loans. Commercial real estate loans also tend to have more stringent credit requirements. Residential real estate loans, on the other hand, tend to have lower interest rates and may require smaller down payments, making them more accessible to individual investors.

A commercial mortgage loan is a commercial real estate loan that is secured by commercial property. Examples of commercial property are apartments, office buildings, or shopping malls. There are various types of commercial loans, such as permanent loans, bridge loans, commercial construction loans, and conduit loans.

The relation between the amortization period and the loan term is an important feature of a commercial loan. The loan term is the period in which the borrower will make and complete all loan payments. Amortization is the scheduling of equal payments over a specified period that would pay off the principal and interest on the loan. In general, amortizations for commercial real estate loans are significantly longer than the loan term.

In order to obtain a commercial mortgage loan, you will need to provide the lender with a detailed business plan, plans for the property, 3-5 years of financial documents (business and personal), and your personal credit history. Additionally, you will need to provide personal details (any name changes, previous addresses), a resume (may be required for a startup), last three (or more) years’ income tax returns (personal and business), and a business plan (should include balance sheet, cash flow statement and projected income statement). For an apartment building or self-storage unit business, you will need to provide a rent roll, and for retail or office space, you will need to provide a schedule of leases. If you are making upgrades to an existing building or are borrowing money for a new construction project, the lender will want details about the local vacancy rate and whether any tenants have pre-signed a lease.

Commercial real estate loans are available for a broad range of eligible commercial property types, including retail properties, regional shopping malls, and small strip malls in busy suburban areas. CMBS lenders generally prefer retail assets with strong, long-term anchor tenants as well as properties managed by experienced organizations.

For more information, please visit Commercial Real Estate Loans and Popular CMBS Eligible Properties.

Commercial mortgage loans offer a number of advantages, including:

• Flexible underwriting guidelines
• Fixed-rate financing
• Fully assumable
• Lenders and bondholders can potentially achieve a higher yield on investments
• Investors can choose which tranche to purchase, allowing them to work within their own risk profiles

In addition, commercial bridge loans offer the following advantages:

• Flexible terms and conditions
• Quick and easy access to capital
• No prepayment penalties
• No minimum credit score requirements
• No maximum loan-to-value ratio

The disadvantages of a commercial mortgage loan include:

• Less autonomy in the operation of the property and limited flexibility to deviate from the terms of the loan documents.
• Difficulty in releasing collateral.
• Expensive to exit.
• Lock outs often prevent prepayment or up to two years.
• Reserves required.
• Secondary financing (i.e. mezzanine debt or preferred equity) not always allowed.