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, lender retains an interest in that property until 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 commercial mortgage principal and interest over lifetime of loan. If you default on loan and go into arrears then lender can foreclose and take possession of property which was used as collateral.
Generally speaking, interest on a commercial mortgage is tax deductible and net proceeds of loan are not considered to be taxable income. However, you should always check with your accountant to be sure because tax consequences can be severe should it be determined that your usage of funds was not for a qualified business purpose.
Should you be seeking a commercial mortgage for purposes of operating your business, rather than actually buying property, then lender will either want to re-finance your current mortgage, and include enough money to provide amount that you are seeking, or they may arrange an equity line where they lend you difference between current value of your commercial property and amount that you owe on 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 life of loan or for a fixed period of time. If it is for a fixed period of time then it will normally convert over to second type of rate, which is called a variable interest rate, after 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 note prior to end of fixed rate period then 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 entire term of loan. Be very sure to read your loan contract carefully to make sure that you understand implications of ERC if it is present.