A commercial mortgage is a loan made using business real estate or a commercial building as collateral to secure repayment as opposed to residential property.
Business entities typically seek out commercial mortgage loans and are assessed by their creditworthiness of the business which is different than the residential mortgage secured by a single or joint applicant.
The process can be more complicated for a commercial mortgage due to the many variables involved in a businesses profile. Since some commercial mortgages are nonrecourse and cannot seek any further reimbursement from the borrower upon default other than the collateral ensued, they are scrutinized more heavily by the creditor.
Upon deficiency of a commercial mortgage loan many laws prevent the creditor from going after the borrower. Since these mortgage are structured for sale as bonds, they are given higher priority to constantly receiving some income and for this reason the lender is allowed to take the property immediately, regardless of bankruptcy proceedings that the borrower may be going through.
It is frequent for this mortgage to be supplemented by an obligation of the borrower or personal guarantor. This makes the debt payable in full regardless of the mortgaged collateral foreclosed on does not satisfy the outstanding balance.
The majority of U.S. Commercial Mortgages require the borrower to make a monthly payment over a 20 to 30 year time frame. They also require a balloon payoff (a total payoff) after a lesser time frame. At this time the borrower typically seeks refinancing or sells the property.