Commercial Lending Glossary
A glossary of definitions for common terms used in commercial real estate hard money lending & CRE investing.
This payment is due at the end of a "balloon loan," and is a larger payment than the typical payment during amortization of the loan. Typically, balloon loans are associated with relatively short terms during which only part of the loan's principal balance is repaid. The remaining balance, usually at least double the amount of other payments, is left as a final repayment.
The status of an individual or legally recognized entity which is unable to repay its debts to creditors. Although there are many forms of bankruptcy with specific implications, in most cases it is initiated by the debtor and imposed through court order.
Before Tax Income
Also referred to as "gross income," this accounts for the income of a company or individual prior to taxes and other deductions. This income includes an individual's salary or wages earned, investment/asset appreciation, and earnings from any other income sources. The corporate calculation is calculated by measuring revenues minus expenses.
This individual receives any advantage, profit, or benefit from something, and generally refers to someone (or an entity) who is set to receive distributions from a life insurance policy, will, or trust.
This type of loan is used to fund the purchase of more than one piece of real estate. Popular among developers and builders, blanket loans are frequently used to purchase large pieces of land in order to divide them into individual parcels, rather than securing a separate mortgage as each portion of the development is sold. Through a blanket loan, as each portion of the development sells, a portion of the larger, intact mortgage is released.
This type of short-term loan is used until an entity, company, or individual secures permanent financing or removes a debt. By providing immediate cash, it serves to bridge the gap during periods when financing might not otherwise be available. Bridge loans hold short terms of up to one year, carry high interest rates, and are generally backed by real property or inventory as collateral.
Building classifications in most markets refer to Class "A", "B", "C" and sometimes "D" properties. While the rating assigned to any particular building is very subjective, Class "A" properties are typically newer buildings with superior construction and finish in excellent locations with easy access and attractive amenities and command the highest rental rates within their sub-market. As the "Class" of the building decreases (i.e. Class "B", "C" or "D") one component or another such as age, location, or construction of the building becomes less desirable.
A financing technique through which a buyer attempts to secure a lower interest rate for at least the first few years of a mortgage. The seller offers payments to the lending institution, which then lowers the borrower's monthly payment by lowering the monthly interest rate. To compensate for these costs, the home seller increases the purchase price of the property.