Commercial Lending Glossary
A glossary of definitions for common terms used in commercial real estate hard money lending & CRE investing.
Financial assets or the financial value of assets. These assets can include facilities, equipment, or funds in deposit accounts, but do not include materials produced. Though associated with money, capital is considered a more durable asset and intended to generate wealth.
Unleveraged initial yield on the investment. The cap rate is expressed as the annual Net Operating Income (NOI) divided by the property price (or asking sales price). Also referred to as the "capitalization rate."
This type of improvement refers to a change or restoration performed on a property intended to either lengthen its useful life, grow the property's value, or adapt it to a new use. Legally, these improvements or additions must be expected to last longer than one year, and can be performed by companies and individuals alike.
Cash Advance Loan
A form of short-term borrowing through which an individual borrows a small total at a high interest rate. Typically, a lender will accept a post-dated personal check in a specified amount (plus a fee) in exchange for cash, and will then cash the check on a specific date. Also known as "payday loans" or "check advance loans."
Cash Out Refinance
This mortgage refinancing option occurs when a borrower refinances for an amount greater than the amount they owe, taking the rest in cash. May also be referred to as a "cash-out refi."
Certificate of Reasonable Value
A document issued by the Department of Veterans Affairs (VA) which establishes a maximum value and loan amount for a VA Loan.
An asset, property or otherwise, that a borrower offers up to secure a loan. Conditionally, the lender can seize this collateral in the instance the borrower ceases to make loan payments as outlined in the agreement.
Combined Loan-to-Value (CLTV)
The ratio of all loans being secured by a property to that property's value. For example, if an individual takes out two loans on their property (valued at $100,000), one loan for $25,000 and one for $50,000, the CLTV ratio is 75%. This ratio can be visualized as (($25,000 + $50,000) / $100,000).
Commercial Real Estate
A major type of real estate, this property is used for business purposes rather than for living space. These properties are often leased out to provide workspaces, and serve a variety of purposes, including offices, hotels, restaurants, shopping centers, and movie theaters.
Common Area Maintenance (CAM)
This is the amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit. Examples include: snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc. Most often, this does not include any capital improvements that are made to the property.
The addition of interest to the principal total as the result of reinvesting interest. Compound interest is common in both loans and deposits and can be contrasted with simple interest.
Certain benefits offered by a landlord or property owner in negotiations to attract tenants. These most often take the form of free rent but may also include lease buyouts, moving allowances and above-standard tenant improvement allowances. In a hot real estate market concessions are difficult to negotiate.
A potential, future negative event. Viewed as possible risks by managers and financial professionals, contingencies may take a wide array of forms, from natural disaster to intellectual theft, terrorism to fraud. Contingency plans are often created in response to the most likely events, and lay out solutions and actions to be taken should that contingency take place.
The contractual agreement in which a borrower agrees to repay a lender at a later date (usually with interest), receiving something of value in the immediate. Credit is also often used to describe the history or "creditworthiness" of an individual or business, and is used to qualify or disqualify that person or entity for lending opportunities.
An organization that rates consumer credit histories and sells that information to creditors. This credit information may be used by credit card companies, banks, or other companies who are looking to gain insight into an individual's creditworthiness.