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In many ways a commercial mortgage is just like a residential mortgage in that you pledge real property as collateral against a loan to either buy or refinance that property. You can also receive a commercial re-mortgage and use it as a line of credit for any business purpose.

When you use a commercial mortgage to buy property, or to raise funds for any other business purpose, the lender retains an interest in that property until the loan has been paid in full. Unlike other types of business loans, which usually have a relatively short repayment period, you can take out a loan for as long as 30 years if you like.

The lender receives repayment of the commercial mortgage principal and interest over the lifetime of the loan. If you default on the loan and go into arrears then the lender can foreclose and take possession of the property that was used as collateral.

Generally speaking, the interest on a commercial mortgage is tax deductible and the net proceeds of the loan are not considered to be taxable income. However, you should always check with your accountant to be sure because the tax consequences can be severe should it be determined that your usage of the funds was not for a qualified business purpose.

Should you be seeking a commercial mortgage for the purposes of operating your business, rather than actually buying property, then the lender will either want to re-finance your current mortgage, and include enough money to provide the amount that you are seeking, or they may arrange an equity line where they lend you the difference between the current value of your commercial property and the amount that you owe on the current mortgage.

There are generally two types of interest schemes available when you are applying for a commercial mortgage.

The fixed rate commercial mortgage establishes an interest rate that is in place either for the life of the loan or for a fixed period of time. If it is for a fixed period of time then it will normally convert over to the second type of rate, which is called a variable interest rate, after the fixed time period expires.

In some cases your lender may add a Early Redemption Charge (ERC) clause to your commercial mortgage contract which states that if you pay off the note prior to the end of the fixed rate period then the lender is entitled to a one-time lump fee to offset their loss of expected income. In some cases this ERC may extend to longer periods possibly up to the entire term of the loan. Be very sure to read your loan contract carefully to make sure that you understand the implications of the ERC if it is present.

With competition from lenders heating up you’ll find that many of them are dropping ERC clauses all together. If there is one present in your loan contract you may be able to negotiate it away with little effort. It’s worth trying in any case and you can always apply somewhere else if your lender is not willing to negotiate.

In the case of a variable interest rate commercial mortgage the rate is based upon those issued by Bank of England. The lender will usually state that the rate consists of the published rate, which will likely vary up and down over the life of the loan, plus some pre-determined premium that remains the same for the life of the loan. Be sure that you understand how frequently your rate will change and that you are comfortable with the amount that the lender is charging as a premium. As with any terms of your loan you can negotiate both of these factors.

A fixed rate commercial mortgage is a good choice when you feel that interest rates are headed up sharply and you want to lock in the current rates. On the other hand, if interest rates are in flux, and economic indicators point to a downtrend, then a variable rate may be your best choice.

Keep this strategy in mind during the lifetime of your commercial mortgage. If you are locked into a fixed rate, and interest rates have dropped significantly below what you are paying, you should consider applying for a re-mortgage and selecting a variable interest rate to take advantage of the lower rates. On the other hand, if you are in a variable, and all indicators are that interest rates will be skyrocketing soon, then look to move into a fixed rate so you can protect yourself against future increases.

Commercial Lifeline are Commercial Mortgage and Bridging Finance specialists. commercial mortgage loans including non-recourse, fixed- and variable-rate loans and more, for investors and real estate developers.

The world has been experiencing a failing economy now for a couple of years and regardless if you are in manufacturing, service, distribution or anything else that relies on one of these industries to survive, you have been affected by the cost cuts and staff reductions.

As in the NY Times on March 15, 2009 ”It’s a huge step in the right direction,” Giovanni Coratolo, director of Small Business Policy at the U.S. Chamber of Commerce, said Saturday. ”In this economy, having the least amount of risk for banks will incentivize banks to lend to small businesses. A lot of small businesses will benefit from this.” [http://www.nytimes.com/aponline/2009/03/15/washington/AP-Obama-Small-Businesses.html?hp]

So what is this going to mean? The SBA guarantees loans up to $20 billion a year in the US economy and yet is projected to approve less than $10 billion in 2009. What does this mean? It means that companies that want to get a SBA loan are not getting approved. The affect of additional funding to the SBA is not really going to do anything if we are currently using less than 50% of the available funding. How will this assist the economy?

The new administration is planning on buying up the slack? By Temporarily eliminating some upfront fees on some of the SBA loans and increasing the guarantee caps to the lenders for these Business Loans. Basically they are looking to off set some of the administrative costs and reduce the risk for the lenders of the SBA loans.

The question now becomes is this enough or just a token to say they are doing something that is left to be seen obviously but lets take a look at this from a business prospective.

Since the majority of this plan is increasing guarantees, is it going to be enough to allow the lenders to reduce their underwriting guidelines to allow more small businesses to access these funds? Lets take a look. We need to make a few broad assumptions here, but lets say that we are currently experiencing a 20% default rate on the SBA Loans being written today. And lets say that the traditional SBA lender will accept a 5% default rate on their Business Loans. Will an increase of 5% toward the defaulted Business Loans have any real impact on the mindset of the risk allowance calculations? Not likely. There are more variables and figures to enter into this calculation, but I am sure you see the point here, it is a start, but it is not enough to motivate SBA Lenders to approve more loans.

On the bright side of things though, this is an initial attempt by Obama to help small business, something that has been a long time coming. As with the major corporations, there has been much negotiation and debate on what to do, so we will have to keep an eye on the progress and analyze the effect to determine future actions.

There are so many alternatives to SBA or bank loans today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.

Wade Henderson is a recognized Expert in the Business Finance World with over 13 years Experience in the Commercial Lending Field and a strong reputation for getting the deal done. Visit his Business Finance Website to put his experience to work for you. Visit the Uber Article Directory to get a totally unique version of this article for reprint.