What is Commercial Real Estate Loan?

Commercial real estate loans are available to commercial property owners for financing purchase, renovation, and expansion of commercial properties such as stores, offices, hotels, apartments, etc. Commercial real estate contrast to residential real estate and by extension, the loan facilities accessible by the loan subscriber. The distinction indicates that commercial real estate loans are solely for income yielding real estate.

Typically, commercial real estate loans are provided by financial institutions, independent investors, and institutional investors (such as pension funds and insurance companies). The loans are then advanced to commercial property owners (usually corporate investors) and are typically backed by a lien on the commercial real estate. This security is for the benefit of the lender, who would rightfully lay claim to ownership of commercial property in the event of default by the commercial real estate owner.

Characteristically and unlike their residential counterparts, commercial real estate loans are for shorter periods and tend to be more expensive in repayment terms, interest rates, and associated fees. Also, greater scrutiny would be ensured by the lender on the nature of the commercial real estate and the financial standings of the commercial property owners.

There are various types of commercial real estate loans, and commercial real estate owners should be well advised to consider the peculiarities of each.

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