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Commercial Real Estate Loan

A mortgage loan credit secured by a lien on commercial, instead of private, property. Commercial real estate (CRE) alludes to any pay property that is utilized exclusively for business purposes, for example, retail centers, office complex, lodgings, and lofts.

A commercial loan is allowed to a variety of business entities, more often than not to help with here and now financing requirements for operational expenses or for the buy of equipment to encourage the working procedure. In a few occurrences, the loan might be reached out to enable the business to meet more fundamental operational needs, for example, financing for finance or to buy smaller supplies that are utilized as a part of the creation and assembling process.

Frequently Ask Questions

Financing a property is the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full price in cash up front from their own accounts at the time of the purchase. Financing for non-residential real estate is generally obtained from a bank, insurance company or other institutional lender to provide funds for the acquisition, development, and operation of a commercial real estate venture. Commercial financing loans are secured primarily by real estate and related assets owned by the debtor. Assets used to collateralize commercial finance loans, aside from the real estate, may include fixtures, equipment, bank and/or trade accounts, receivables, inventory, general intangibles, and supplies. Documents evidencing and securing the loan typically include: loan agreements, promissory notes, mortgages or deeds of trust, assignments of rents and leases, financing statements, environmental indemnity agreements, guaranties, subordination, non-disturbance and attornment agreements, estoppel certificates, and other ancillary documents.

A property owner must decide whether it will own property in an individual name or in an entity. Entity options include the joint venture, general partnership, limited partnership, limited liability partnership (LLP), limited liability limited partnership (LLLP), “subchapter C” corporation, “subchapter S” corporation, limited liability company (LLC), business trust, land trust, or real estate investment trust. The choice of entity for purposes of commercial financing is one that will be dependent on many factors, including tax considerations, identities of the owners, whether there will be preferred returns, who will operate the project, state law, and the like. The decision as to whether to use an entity and, if so, which entity to use can be complicated and should be made with the assistance of competent tax, accounting and legal advisors.

A prepayment premium, sometimes called a prepayment penalty or yield maintenance fee, is a provision in a commercial loan that assesses a fee, based on a stated formula, in the event a debtor pays a debt prior to its contractually stated maturity date. The prepayment premium is intended to compensate a creditor for its loss of anticipated revenue stream over the full term of the loan in the event of a prepayment.

A non-recourse loan is a secured loan that limits the creditor, in the event of default by the debtor, to proceed only against the collateral securing the loan to satisfy the debt and not the debtor’s other assets which are not specifically pledged as collateral, except in certain limited and negotiated circumstances which are called “carve-outs.” Non-recourse carve-outs usually include an act or omission by the debtor that is a material obligation, such as failing to insure, or certain bad acts (often referred to as “bad-boy” acts) such as misappropriation or misapplication of funds from the property’s income, and violation of a clause forbidding sale. Depending on the assets of the debtor and whether the debtor is an SPE with no other assets but the property securing the debt, and whether there is a guarantor, the non-recourse carve-outs may be of little value.

An environmental indemnity agreement is an agreement by which a debtor indemnifies the creditor against any claims or losses arising from environmental contamination of the mortgaged property. Creditors want environmental indemnities to protect against loss or damage due to the creditor’s position as a lien holder or trustee where the creditor has not caused or contributed to, and is otherwise not operating, the mortgaged property. These indemnities are sometimes limited and sometimes have carve outs to exclude actions of the creditor or its agents.