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The 3 C's of Commercial Real Estate Loans

Most individuals have a general understanding of what it takes to qualify for a home loan, but few know what it takes to qualify for a commercial real estate loan or multifamily loan.

 

The 3 C's of Commercial Lending: Overview

Crefcoa simplifies the understanding of the commercial mortgage loan process by segmenting the qualifying criteria into 3 categories, or simply the 3 C's of Commercial Mortgage Lending:

1.  Commercial Real Estate Property Collateral
2.  Commercial Real Estate Property Cash Flow
3.  Credit of the Borrower/Guarantor

 

It is important to note that the 3 C's of Commercial Mortgage Lending are applicable to most income producing commercial real estate properties. *For owner occupied commercial real estate, the businesses cash flow is substituted for property cash flow.*

 

The 3 C's of commercial loans refer to the most important factors in determining the approvability of a commercial mortgage loan request during the underwriting process. While each commercial lender may have slightly different definitions for the 3'Cs, depending on each respective commercial lender's credit policy, there is one constant among them: Not meeting any one of the 3 C's is reason enough reason to decline your loan request.

 

1.  Commercial Investment Property Loan Collateral
Collateral simply refers to the commercial real estate that is offered as security for the commercial loan request. In case of default, the commercial lender will exercise the acceleration clause of the mortgage and begin the foreclosure process.

 

In addition, the commercial mortgage generally requires the borrower to assign the rents and/or leases of the collateralized property giving the lender additional security.

 

Other assets (cross-collateralization) may be used in addition to the primary source of collateral to secure the commercial mortgage. FF&E, contracts, receivables, and in some cases a guarantor's personal assets are all possible sources of cross-collateralization. Learn more about commercial mortgages

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This article is protected under the copyright laws of the United States (title 17 U.S. Code). Any unauthorized use is strictly prohibited. If you would like to reprint this article for use on a commercial website, please contact Crefcoa for more information.

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