Commercial Mortgage
A commercial mortgage is a mortgage taken out against business premises. The business property acts as security for the loan, to be acquired by the lender in the event of non-payment. The mortgage itself could be used for any purpose, not necessarily the purchase of property as is common in conventional residential mortgages.
Applications for commercial mortgages are evaluated fairly stringently. The applicants will be expected to demonstrate that the business is on a solid footing and has enough of an income stream to make the payments affordable. The prospective lenders may ask to see several years’ worth of audited accounts and perhaps a statement from the company’s accountant. They may wish to review the personal financial histories of the directors or owners of the firm.
Commercial mortgages are typically long term arrangements with durations of up to 25 years being commonplace.
The interest rate offered will reflect the degree of confidence the lending institution has in the viability of the business, including a judgement about the experience and competence of the company’s managers, as well as awareness of how other companies in the same business sector are faring in that locale. Sometimes, as well as the steady stream of interest payments, a large single payment, called a “balloon payment” is required as part of the arrangement.