Business Loan Mortgage

A business loan mortgage is a loan taken by a business using a commercial building or other business real estate as collateral. In the case of the business mortgage loan, the borrower is no individual but a business. This business can be a sole proprietorship, partnership, or limited liability company. So, proper estimation of the creditworthiness of the business enterprise is a serious factor in this case. It is crucial because, in case of default in repayment of the loan by the borrower, the lender can only take hold of the collateral but cannot establish any further claim even if he suffers from loss of capital.

Terms of business mortgage loans- Terms of a business mortgage loan can vary from 5 years to 30 years. Though, generally, business organizations choose to repay the loan in 20 to 30 years. Till the full repayment of the loan, that is for the term period of the loan, the property used as collateral remains amortized.

Use of business loan mortgage- Business loan mortgages is generally used to acquire land or any commercial property to start a business. These loans are also taken to expand an existing business. Another use is to refinance a credit taken earlier.

Basics of business loan mortgage- Business mortgage loans, which are generally long-term, require monthly payments for the whole term period. These periodic payments are calculated in accordance with the time value of money. Over the total term period of the loan, the principal part and interest part of the loan is paid off. The banks or financial institutions that are the lenders, offer this kind of loan to earn interest income. A business loan mortgage can be transferred from one financial institution to another one. In that case, a settlement is done among the earlier lender, present lender, and the borrower. After that, the present lender pays the dues to the earlier one and becomes entitled to receive the monthly payments from the lender.

Types of business loan mortgage- Payment amount and payment frequency can differ for the business mortgage loans. For some business mortgage loans, the amount to be paid per period may change according to the borrower’s wish that is, borrowers can get the option of paying the variable amounts at different periods. For some business mortgage loans, prepayment has no restriction but for some, there are limits on prepayment either on the full amount of loan or on a certain amount of loan. Payment of penalty to the lender can also be associated with prepayment of some business mortgage loans.

Interest Rates associated with business mortgage loans- Interest rates associated with business mortgage loans are generally higher than the interest rates of residential mortgage loans. Most of the time, business mortgage loans come with fixed interest rates that are, the interest rate remains fixed for the whole term period of the loan. But business mortgage loans also can have variable interest rates associated with them.