Commercial Loans

Fixed residential financing typically is amortized over 30 years, with a fixed interest rate and free of a balloon payment. Conversely, most commercial real estate loans are amortized over 25 or 30 years and the term is usually no longer than 10 years.  Therefore, the commercial loans will need to be refinanced at the end of the term.  With refinance looming, a high percentage of commercial loans will not meet the bank's standards for new financing.  This is due to softening capitalization rates, landlords forced to lower lease rates for fear of loosing tenants permanently, and a decrease in rental income as a result of increasing vacancy rates.  Once the underwriter applies the new and tougher standards, the new loan will require more capital to be added to reduce the loan to value  (LTV) and assure that the debt coverage ratio meets the bank's standards.