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Commercial Lending Glossary


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1031 Exchange
An exchange of business or investment property for another property of equal or lesser value for which Internal Revenue Service (IRS) Code 1031 allows capital-gains deferral. To satisfy the IRS regulations, a replacement property must be identified within 45 days of the sale of the original property, and closing must occur within 180 days. Third-party 1031-exchange intermediaries are often employed to monitor timing, prepare documentation and hold funds between sale and purchase. 

4506, 4506-T or 8821


A mortgage lender's right to demand immediate payment from a borrower who defaults on a loan.

Acquisition and development loan
A loan provided for the purpose of developing raw land.

Additional advance
Supplemental loans given to borrowers while they are completing their mortgage transactions. These advances are often paid as a percentage of the mortgage.


American Society of Testing Materials (ASTM)
Organization that defines environmental regulations used to set the benchmark for standardized environmental reporting. Commercial real estate developers can satisfy Comprehensive Environmental Response, Compensation and Liability Act requirements using ASTM standards for environmental site assessments.

Annual percentage rate (APR)
The annual cost associated with borrowed funds expressed as a percentage.


The increase in value of an asset. Real estate may appreciate due to a number of factors, including inflation-rate increases, limited supply of inventory, highly desired location or the local economy’s growth rate.

Balloon payment
An oversized payment due at the end of a mortgage, commercial loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender. Balloon payments are often prepackaged into what are called "two-step mortgages." In this type of mortgage, the balloon payment is rolled into a new or continuing amortized mortgage at the prevailing market rates. Balloon payments can occur within fixed-rate or adjustable-rate mortgages (ARMs).

Blanket loan
A mortgage loan with multiple properties as collateral.


Bridge loan
A short-term loan given to a borrower until permanent financing becomes available.

Building permit

Business credit report
A compilation of a commercial entity's credit history and risk.

Capital gain
The difference between an asset’s appreciation and the price paid when it was acquired.

Capital-gains tax
Tax on profits received from the sale of capital assets.

Cash-out refinance

Certificate of occupancy (C of O)
A key piece of documentation in commercial real estate that is issued when building construction is complete. The C of O indicates that no other work is required and that all inspection requirements have been satisfied. In commercial finance, when the borrower receives the C of O, the lender will close a temporary bridge loan and, once the final project costs are calculated, issue a permanent loan.

Closing costs
Fees associated with the acquisition of real estate. These include, but are not limited to, lender fees, credit checks, title insurance, and survey and recording fees.

Commercial mortgage-backed securities (CMBS)
A type of mortgage-backed security that is secured by loans on commercial property. A CMBS can provide liquidity to real estate investors and to commercial lenders.


A federal law designed to clean up and establish liability for hazardous waste sites, also known as Superfund sites.

Construction completion loan
A loan provided to cover project cost overruns. Typically, a bank will lend a set amount for construction projects, and borrowers are required to pay for or finance any additional costs. If borrowers experience a cash shortfall, construction completion loans cover the difference. Because the borrower is typically in a critical situation, interest rates on these loans are generally higher than for conventional loans.

Construction loan

Construction output price index (COPI)
A measure of the cost of work being executed in a given period. The index was originally designed to measure the inflation-adjusted value of construction output, but is also used in a range of other statutory and contractual applications.

Contingency fund
Money reserved as a buffer to cover cost overruns or unexpected expenses in a project. In loan underwriting, the fund is often tied to and calculated as a percentage of estimated construction costs.

Correspondent lender
A mortgage broker/banker who originates, funds and sells mortgage loans through a relationship with a larger lender, in accord with the larger lender's underwriting guidelines and program offerings.

Credit report (Personal)

  4. Recent inquiries: The names of those who have obtained copies of the consumer’s credit report within the previous two years.

Credit score

Debt-service-coverage ratio (DSCR)
A calculation used in commercial real estate underwriting to determine whether income from a property can service the debt associated with the property. To calculate debt service coverage, divide the net operating income by total debt service for the subject property. A DSCR greater than 1 indicates a positive cash flow, and a DSCR less than 1 indicates negative cash flow. Ideally, lenders look for a DSCR of 1.2 or higher.

Debt-to-income ratio (DTI)
A calculation based on total monthly debt payments divided by total monthly income. This is a percentage-based result, and measures the level of lending risk.

Deed of trust
A document created under state law that documents a pledge of real property to secure a loan.  The deed of trust involves the trustor (borrower), the beneficiary (lender) and the trustee.  The trustee is a third party who holds title and is empowered to foreclose on the property should the trustor default.

The failure of a debtor to meet a legal obligation of a loan, i.e. the failure to make a payment, or payments, on a mortgage loan. 

Deferred interest


Draws on demand

EB-5 Immigrant Investor Program
A program created by federal law, under which immigrants to the U.S. may be granted visas by investing minimum amounts ranging from $500,000 to $1 million in new commercial enterprises. Investments must meet location and job-creation criteria.

Environmental risk
The potential loss of value because of the presence of hazardous materials on a property. Such materials may include asbestos, polychlorinated biphenyls, radon or leaking underground storage tanks.


  1. The difference between a property’s market value and the debt owed on the property. If a borrower owes $700,000 on a loan for a property valued at $1 million, the borrower has $300,000 in equity in the property. Can also be expressed in negative terms.
  2. The value of shares issued in a commercial real estate enterprise, or other company.

Equity line of credit
A credit product in which a property owner borrows against the owner's equity in a commercial property, as needed. Typically, there is a fixed period of time that a borrower can draw on the loan, after which it is converted to a term loan.

Escrow account
A trust account in which cash or other assets are held to pay expenses pending satisfaction of contractual obligations.

Financial statements
Historical financial reports of assets, liabilities, capital, income and expenses.


Flagged hotel
A hotel belonging to a nationwide corporation or franchise.

Flood zone
A geographical area designated by the federal government as subject to potential flood damage. Lenders must complete a Federal Emergency Management Agency (FEMA) flood-hazard-determination form prior to funding a property to determine whether a property is localed in a potential flood zone and required to carry flood insurance. The 100-year floodplain — or areas where floods have a 1-percent chance of equaling or exceeding the elevation each year — is the basis for most FEMA determinations.

Floating rate
An interest rate that is allowed to move up and down with the rest of the market or with an index. This contrasts with a fixed interest rate, in which the interest charged on a debt obligation stays constant for the duration of the agreement. A floating interest rate is also referred to as a variable interest rate.

Foreign national
An individual residing in a country, but who has not been granted the legal right to permanent residency.

A business method in which independent owners operate under a right or license agreement to distribute goods or services.

Free and clear
Ownership of an asset without debt obligations.

Garden apartment
In real estate finance, this usually refers to a multifamily development or project in which tenants have access to a shared lawn area.

Good-faith deposit

Graduated-payment mortgage

Hard-money loans
A type of financing that typically provides funds for hard-to-fund projects or short-term purposes. Hard-money lenders generally give more consideration to the value of the property, or collateral, than to credit history. Loan-to-value ratios are usually less than 75 percent, and credit scores, if required, can be less than 500. Also referred to as equity lending.

Improved land
A parcel of land that has been developed for use. Improvements may include electrical, water, telephone or sewer lines; grading, landscaping, roads or gutters; and construction of permanent structures.

Individual Taxpayer Identification Number (ITIN)
An alternative to a Social Security number, which is used for federal and state taxation purposes. ITINs are assigned to those who do not qualify for Social Security numbers, such as foreign nationals working in the U.S.

Installment loan

Assets that lack physical substance, such as goodwill, patents and trademarks.


Interim financing
A short-term loan issued prior to permanent financing.

Interim statements
Financial statements issued for periods of less than one year.

Investment property

Joint tenancy

Leasehold improvements


Loan-to-cost ratio (LTC)
A percentage calculated by dividing the loan balance of a construction project to the cost of building the project.

Loan-to-value ratio (LTV)
A percentage calculated by dividing the loan balance of a property by its market value. The higher the LTV, the greater risk for the lender. Consequently, loans with more than 80-percent LTV have higher interest rates and typically require private mortgage insurance.

Market value

The time at which a loan’s principal balance must be paid.

Mezzanine financing
A loan that comes with a warrant that lets the lender convert to equity-interest in a property if the loan is not repaid in full.

Mini-perm loan
A commercial loan with a balloon payment and a three- to five-year term. Mini-perms are obtained for projects without an established operating history. The loans provide funding while projects are being established, with the assumption that they will be converted into permanent loans once the property is in use.

Mixed-use properties
Properties built and/or zoned for commercial and residential use. They typically feature ground-level commercial space with residential apartments or condominiums above.

A loan that is paid over time and secured by real estate. The lender retains the legal right to acquire and sell the property if there is a breach in the loan contract, such as a failure to pay.

Mortgage broker

Properties that are constructed for multiple-family use, such as apartments or duplexes. If the building is sold as a complete unit, condominiums can also be considered multifamily properties. However, condominiums typically are sold as individual units, and not considered multifamily properties.

Net-net lease
A lease in which, in addition to the rent, the tenant pays for property taxes and insurance. Commercial tenants are also might also be required to pay maintenance costs on a property (See Triple-net lease).

Non-owner-occupied property

Nonrecourse loan
A loan that is secured by collateral (e.g., a home or building), but for which the borrower is not held personally liable. If the lender seizes the property and the sale does not cover the loan, the borrower is not responsible for the shortfall. Nonrecourse loans typically have a lower loan to value ratio (80 percent to 90 percent) to increase the lender's level of protection should the loan go into default.

Nonresident aliens
Immigration status granted to foreign nationals living and working in the United States on nonimmigrant visas. The most common types of visas are tied to a sponsoring institution or employer (e.g., EB-1, F-1, H-1B, J-1, etc.). For tax purposes, nonresident aliens are taxed on U.S.-based trade, business or employment income. 

Office condos
Office units that business owners can buy rather than lease.

On-time completion bonus
A bonus given to a contractor for finishing the construction of a home or commercial project within an allotted timeframe.

A property-owner who assumes responsibility for the overall job of building a property, rather than using a general contractor.

Owner-occupied businesses
Businesses that operate out of the building they own. 

Par pricing
An interest rate used as the reference point for which a mortgage lender will neither pay a rebate (yield spread premium or negative points) or require discount points for a mortgage.

Passive real estate
Income-producing properties that do not require active involvement in their day-to-day operations, such as storage facilities and carwashes.

Permanent resident aliens
Foreigners who have been granted permanent residence in the United States and have been issued a permanent-resident card (aka, green card) but who do not have U.S. citizenship. For tax purposes, permanent residents are taxed on their global income.

Personal Financial Statement

Planned urban development (PUD)
A type of community zoning classification that is planned and developed within a city, municipality and/or state that contains both residential and non-residential buildings (such as shopping centers). Open land, such as for parks, is also often included PUD zones.

Preferred lending partner

Power of attorney
The legal right to make decisions on another’s behalf.

Early repayment of a loan.

Prepayment penalty
A fee charged to borrowers for early repayment of their loan, to compensate the lender for lost interest payments.

The original amount of money borrowed on a loan.

Principal reductions with reamortization

Private money
Typically short-term, high-interest-rate loans by private individuals or small companies. Also known as hard money.

Pro forma
Financial adjustments made off the balance sheet, reflecting the impact of recent or anticipated changes.

Financial statements that predict future income, cash flow and balance sheets. They typically span multiple periods of time. 

Quit-claim deed
A legal term indicating one party has terminated its interest in the property.

Raw land

Process by which a loan is paid off with proceeds received from a new loan. The same property is used as collateral for the new loan. Loans may be refinanced for several reasons, including more favorable terms, change of lenders, access to equity, change of guarantors, etc. 

Rent roll
A detailed list of tenants on a property, outlining the square footage and area leased, amount paid in rent, lease terms, etc.

Rent step-up
A rental agreement in which the monthly rent payment increases over a fixed period, or for the life of the lease.

Right of rescission 
Borrowers' ability to back out of a loan, usually established by law as a specific time period.

Small Business Administration (SBA) loans
The federal Small Business Administration guarantees bank loans that are structured to meet SBA requirements. The 7(a) program is the most popular for starting, acquiring and expanding businesses.  The 504 program supports long-term, fixed-rate mortgages for fixed assets - usually buildings, land and machinery. The loans are intended to promote economic growth, and are offered at terms that are often more favorable that conventional bank financing.

Securitized mortgage

Seller carry-back
An agreement in which the seller provides financing for all or part of the purchase price of a property.

Special-use/single-purpose property
An income-producing property designed for a specific purpose. In most cases, a significant expense would be required to convert this type of property to a general-purpose facility. Examples include restaurants, carwashes and hotels.

Subdivision construction loans

Subordinate financing
A secondary or “junior” lien on a property. If there is a foreclosure, the primary-lien holder is paid first. For lenders, taking a subordinate position involves more risk, as well as the potential that they won’t get paid in a foreclosure. Consequently, the interest rate is usually higher.

Sweat equity
Providing labor, rather than cash, toward the completion of a project. Often this term applies to a property under construction for which the owners do some of the work. This is a cost-saving technique with a fair market value. Lenders accept sweat equity on a case-by-case basis, which varies by lender.

Tenants in common (TIC)
Two or more individuals holding title on a property.


Title insurance

Treasury bill (T-bill)

Triple-net lease (NNN)
A lease in which, in addition to rent, the tenant is required to pay for property taxes, insurance and maintenance. Commercial leases might also require tax and insurance payments, but not the cost of maintenance (See Net-net lease).

A legal form that a creditor files to give notice that it has an interest in the personal property and/or income related to the collateral backing a commercial mortgage.

Process used by lenders to determine borrower eligibility and ability to repay a loan. A number of factors are evaluated, including personal credit history, financial statements, employment history and salary. In commercial real estate finance, these factors also include business financial records, history and projections.

USDA Business and Industry Loan Program (USDA B&I)
United States Department of Agriculture loan-guarantees made to rural businesses to improve a community's economic condition.

Warehouse line
A line of credit extended to mortgage bankers to allow them to provide mortgage loans. With the line, they often can make faster  lending decisions and fund loans faster than through typical bank approval process.

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