Commercial property loans are loans made using real estate as collateral to secure repayment.
A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, not residential property. In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers.
Borrowers in commercial property loans can be many different types of business entities. This makes the assessment of the credit of the borrower much more difficult than it is with borrowers in residential property loans.
Some commercial property loans are nonrecourse, meaning that in the event of default in repayment, the creditor can only seize the collateral, but has no further claim against the borrower for any remaining deficiency. This is a contrast to the norm with residential property loans, in which a lender can usually seize other assets of the borrower in the event of non-payment.
Frequently, the commercial property loan is supplemented by an obligation of the borrower or a guarantee from the owner(s), which causes the debt to be payable in full even in the event that foreclosure on the mortgaged collateral does not satisfy the outstanding balance.
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