The property is usually held up as collateral in a commercial mortgage. If the borrower fails to pay the amount owed on the mortgage, the property can be taken by the mortgage lender. This is typically the recourse taken by commercial lenders when there is a default on the payment.
There are many reasons for a commercial property loan such as expanding a business or developing land. Some businesses may use a commercial mortgage to pay down debt or increase the capital they need for the operation of the company. The properties used in a commercial mortgage include warehouses, offices and retail stores. There may be different terms used in a commercial mortgage than those used in a residential mortgage.
Commercial lenders will analyze the proposal to determine if the terms are appropriate for the lender. The borrower is examined to determine if they have the capability to repay the loan. The business as a whole is looked at by the lender to determine if the business has the capacity to earn the amount of the loan. A commercial lender is in business to earn money. When a business does not meet their criteria for lending, it is not in the best interest of the mortgage lender to lay out the money with a less than favorable probability of it being returned.
The value of the property is used to determine the loan amount on a commercial loan. The borrower is not considered in the credit, but instead the entire businesses credit is used to determine the worthiness of the borrower. Commercial loans differ from residential mortgages in that it is much easier to recover a commercial property in the case of bankruptcy than it is a residential property.
Commercial mortgages are designed to benefit the borrower and the lender. Both parties are interested in making money on the transaction. The lender is making money on the amount of money that they can reasonably lend to businesses and businesses can expand and increase their profit. Both parties take a risk in the transaction, but the rewards make the deal much more palatable for lenders and borrowers in commercial loan transactions.