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Commercial Loans Overview

Understanding the various derivatives of commercial loans is critical to a growing business. Unless you fully understand what commercial loans are and how they work, you will never be able to take full advantage of such great services provided by commercial loan underwriting or a commercial loan mortgage orginator. Success in business is predicated by knowledge, so here is a quick review of some of the key terms associated with commercial loans.

Commercial Lender

To begin with, who is a lender? Traditionally we think of banks and savings and loans organizations as lenders. So what makes a bank a commercial lender? When we speak of commercial transactions, we are typically talking about transactions that occur for business purposes. Thus a commercial lender would be any money lending institute that lends money out for business purposes.

Now that we have a better understanding of what a commercial lender is, let’s take a look at some of the important terms associated with commercial lending and loans.

Commercial Loan Underwriting

To ensure the value and creditworthiness of a commercial loan, all loans should go through the commercial loan underwriting process. The best banks and financial institutions provide commercial loan underwriting as a necessary precautionary measure before issuing a loan. The commercial loan underwriting process can involve a number of different measures, but most banks first examine the borrowing amount and make sure the borrowing amount is around 75% of the estimated value of the project.

Other aspects of the commercial loan underwriting process involve assessing the fair market value of the project or the fair market rent of an income property, such as an apartment dwelling. Different projects present different risks, and thus it is important to analyze these risks in the commercial loan underwriting process.

In addition to assessing the risk of the project, it is also important to assess the debt coverage ratio as a means to evaluate the attractiveness of a project. The commercial loan underwriting process takes an in depth look at the debt coverage ratio as another method for determining the overall value of an investment project.

Commercial Loan Mortgage Originator

A commercial loan mortgage is essentially a mortgage on a business or income property you own. From the roots of the word originator, we can derive that an originator is simply somebody who starts something or some process. In this case, a commercial loan mortgage originator describes the bank that granted you the commercial loan mortgage. The loan was originated, or started by the bank, and thus they are thought of as the commercial loan mortgage originator. This distinction can be important because in the future the commercial loan mortgage originator may actually sell your loan or mortgage to another bank. You would now be held liable by this new bank, who in turn begin to service your loan, or process your payments on the loan. The original bank would remain your commercial loan mortgage originator, but your relationship with regards to the mortgage would go forward with the new bank.

Commercial Real Estate Loan

There are a variety of different types of commercial real estate loans available to customers. The important thing to remember is that a commercial real estate loan does not have to be very complicated. This type of loan is simply a loan which is secured against some form of real estate. Obviously, the primary purpose of a commercial real estate loan is to purchase an investment property and hopefully earn some returns on that property.

As you look to pursue an investment property and take out a commercial real estate loan, keep a couple of things in mind. First you should find a commercial loan mortgage originator that fits your needs, is willing to work with you, and will offer you competitive rates. It is also essential to remember that the commercial loan underwriting process is paramount if you are interested in securing a good loan for a good property that has low default risks.

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