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What does a Commercial Lender do?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
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  • Last Modified Date: 31 October 2016
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Commercial lenders are financial institutions that provide loans to commercial enterprises, backed with some type of collateral. The type of collateral required will often depend on the amount of the loan, the financial condition of the entity seeking to secure the loan, and the intended purpose for the loan. In many situations, the primary purpose of a commercial lender is to provide financial services to businesses that may or may not be able to obtain loans from a bank.

There are a number of different types of commercial lenders. Some are private lending institutions, while others are mutual companies or even venture capitalist groups. It is not unusual for a commercial lender to specialize in a particular type of financing opportunity. For example, venture capitalists may focus their lending activity on existing businesses that have assets like land, buildings, and equipment, but need an influx of cash to expand the company operation.

A commercial lender is often engages in writing mortgages for businesses of different sizes. A commercial mortgage lender will often look closely at the current market value of the property involved, and determine if that real estate is likely to hold its value for the duration of the mortgage loan. If so, then the property can be used as collateral and the loan is approved, providing the applicant meets all other criteria required by the lender.

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The goal of a commercial lender is to provide financing to worthy applicants when banks and other types of lenders are reluctant to do so. By requiring some type of collateral in exchange for approving the loan, this type of lender is able to extend the financing while still keeping the degree of risk assumed within reasonable limits. As in most loan situations that require collateral, the commercial lender will assess the assets offered as collateral closely, to make sure the market value of those assets is sufficient to cover the outstanding balance due on the loan at any time between the granting of the financing and the remittance of the final payment. Doing so not only protects the interests of the commercial lender, but also increases the chances that the lender will be in a position to underwrite other loans in the future.

A commercial lender will typically employ loan officers and agents that are familiar with local banking regulations and standards, and are able to accurately assess the value of property and other hard assets offered as collateral. In some cases, the interest rates applied to a commercial loan may be somewhat higher than other options, especially for commercial applicants who have been turned down elsewhere. Only after assessing the ability of the applicant to repay the loan in full, and determining that the collateral meets minimum requirements will a commercial lender grant the loan and extend the financing to the entity seeking the financial assistance.

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Markerrag
Post 2

@Melonlity -- and a few of those bad apples will always lead to increased government regulation. That is too bad, but sometimes necessary.

The problem with commercial lending is that there is a thin loan between being responsible and being so conservative that qualifying for a loan is so touch that businesses choose to build elsewhere. A challenge to lenders is finding that line and staying on the profitable side of it.

Melonlity
Post 1

Good commercial lenders can really help a local economy grow while a bunch of overzealous ones can do a lot of damage. We have seen that time and time again. When commercial lenders believe too strongly in the economic expansion of an area, they tend to give out loans that might or might not get paid. When the inevitable happens and a lot of businesses default on their loans, the resulting foreclosures can drop commercial property values and lead to less money being available for commercial lending for a time.

More responsible commercial lenders, on the other hand, might not fuel rapid expansion but they are often in the background where slow, steady economic growth is the rule.

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