Commercial loans, or commercial real estate loans, are specific types of business loans used for business real estate financing needs.
There are a variety of types of commercial loans, each with unique uses (and we’ll talk about the specifics more in a minute). So commercial loans can refer to commercial mortgages, commercial bridge loans, SBA loans, and more.
While loan sizes and interest rates vary from lender to lender and loan to loan, commercial loans often come in large amounts with low rates. That makes them ideal for large, expensive real estate purchases.
So how does owner financing work? Well, once a buyer and a seller agree to go with owner financing, they have to come to agreement on the terms and conditions.
Just like a normal commercial mortgage, owner financing will have an amount that’s being financed, interest on that amount, a payment schedule, etc. In most cases, the seller will also require the buyer to make a down payment―again, just like a traditional mortgage.
Once they have that agreement, they make it formal. This takes the form of a promissory note, a document that lays out all those details, and a mortgage or deed of trust, which is essentially a lien on the property being sold.
After that, as with any loan, the buyer makes scheduled payments, and everyone’s happy. Or are they? Because as it turns out, owner financing isn’t right for everyone.