Commercial Lending Glossary
Last Updated: March 30, 2025
Understanding commercial real estate financing terms is essential for successful investing in Florida's dynamic property market. Whether you're securing a commercial mortgage, seeking hard money loans, or evaluating investment opportunities, this comprehensive glossary will help you navigate the complex terminology of commercial lending.
We've compiled the most important commercial real estate financing terms that every investor, property developer, and business owner should know. Use this guide to make more informed decisions and communicate effectively with lenders, brokers, and other real estate professionals.
A
Amortization
The process of gradually paying off a loan over time through scheduled payments of principal and interest. Commercial loans often have amortization schedules ranging from 15 to 30 years.
Annual Percentage Rate (APR)
The total yearly cost of borrowing, expressed as a percentage, including interest and fees. APR provides a standardized way to compare different loan offers from Florida lenders.
Appraisal
A professional evaluation of the value of a property, used to determine loan amounts. Commercial lenders typically require third-party appraisals to establish current market value before loan approval.
Asset-Based Lending
A loan secured by collateral such as inventory, accounts receivable, or equipment. This financing option allows businesses to leverage their existing assets to obtain working capital or investment funds.
B
Balloon Payment
A large, final payment due at the end of a loan term after smaller regular payments. Many commercial real estate loans in Florida are structured with balloon payments to offer lower monthly payments during the loan term.
Bridge Loan
A short-term loan used to cover immediate financing needs until permanent financing is secured. Bridge loans are popular for commercial property acquisitions when timing is critical in Florida's competitive market.
Business Credit Score
A score that measures a business's creditworthiness based on payment history, credit usage, and financials. Commercial lenders evaluate business credit scores when determining loan eligibility and interest rates.
C
Capital Expenditure (CapEx)
Funds used by a business to acquire, upgrade, or maintain physical assets such as property, buildings, technology, or equipment. CapEx is often financed through specific commercial loan products.
Cap Rate
Capitalization rate; a measure used to assess the return on investment of a commercial property. Calculated as the ratio between the net operating income and the property value, cap rates in Florida typically range from 4-10% depending on property type and location.
Cash Flow
The net amount of cash being transferred into and out of a business. Positive cash flow is essential for securing commercial financing and sustaining loan payments.
Collateral
Assets pledged by a borrower to secure a loan. In commercial real estate lending, the property itself typically serves as primary collateral.
Commercial Mortgage
A loan secured by commercial property. These mortgages finance income-producing properties like office buildings, retail spaces, multifamily apartments, and industrial facilities throughout Florida.
Covenant
A clause in a loan agreement that sets conditions on the borrower. Commercial loans often include covenants regarding financial performance, property maintenance, and operational requirements.
Credit Facility
A type of loan agreement that allows a borrower to draw funds up to a certain limit. Credit facilities provide flexibility for businesses to access capital as needed for property acquisition or development.
D
Debt Coverage Ratio (DCR)
A measure of a property's ability to cover its debt obligations, calculated as net operating income divided by total debt service. Most Florida commercial lenders require a minimum DCR of 1.20-1.25 for loan approval.
Debt Service
The total amount of principal and interest a borrower must pay on a loan. Managing debt service is crucial for maintaining positive cash flow on commercial investment properties.
Default
Failure to repay a loan according to the agreed terms. Default on commercial loans can lead to foreclosure and significant financial consequences for borrowers.
Depreciation
The reduction in the value of an asset over time. Commercial property owners can use depreciation as a tax deduction to offset income, making it an important consideration in investment financing.
E
Equity
The value of an owner's interest in a property, calculated as property value minus outstanding debts. Equity in existing properties can often be leveraged to secure financing for additional investments in Florida's real estate market.
Escrow
Funds held by a third party to be released upon fulfillment of certain conditions. Commercial loan closings typically involve escrow accounts to manage property taxes, insurance premiums, and closing costs.
Exit Strategy
A plan for how a borrower or investor will repay or exit a loan or investment. Florida commercial lenders often require clearly defined exit strategies, particularly for short-term financing options like bridge or hard money loans.
F
Fixed Interest Rate
An interest rate that remains the same for the entire term of the loan. Fixed-rate commercial mortgages provide payment predictability but may have higher initial rates than variable options.
Foreclosure
The legal process by which a lender takes ownership of a property due to loan default. Florida has specific foreclosure laws and procedures that apply to commercial properties.
Franchise Financing
Loans specifically tailored for franchise businesses. These specialized financing options help fund franchise acquisition, property purchases, and build-outs for franchisees throughout Florida.
Funding Fee
A fee charged by lenders to cover the cost of processing a loan. Commercial loans often include various funding fees that impact the total cost of borrowing.
G
Gap Financing
Short-term financing used to cover temporary shortfalls between primary loans and total project costs. Gap financing is common in commercial real estate development in Florida's growing markets.
Gross Rent Multiplier (GRM)
A measure of a property's value based on its gross rental income. Calculated by dividing property price by annual gross rental income, GRM helps investors quickly compare potential investment properties.
H
Hard Money Loan
A short-term loan secured by real estate, typically issued by private investors. Hard money loans in Florida offer faster approvals and more flexible qualifying criteria than traditional bank financing, making them popular for fix-and-flip projects and time-sensitive deals.
Holdback
A portion of the loan withheld by the lender until certain conditions are met. Holdbacks are common in construction or renovation financing to ensure project completion according to specifications.
I
Interest-Only Loan
A loan where only interest is paid during the initial term, with principal due later. Interest-only periods help investors maximize cash flow in the early stages of commercial property ownership.
Interim Financing
Temporary funding used until permanent financing is secured. Commercial real estate developers often use interim financing during construction before transitioning to long-term mortgages upon project completion.
Internal Rate of Return (IRR)
A metric used to evaluate the profitability of an investment. IRR helps commercial real estate investors compare potential returns across different property types and locations in Florida's diverse market.
J
Joint Venture (JV)
A business arrangement where two or more parties share ownership and responsibility for a project. JV structures are common in large commercial real estate developments, allowing partners to combine financial resources and expertise.
K
Key Man Insurance
A policy that compensates a business for financial loss due to the death or incapacity of a crucial individual. Commercial lenders may require key man insurance as a condition for loans to businesses heavily dependent on specific individuals.
L
Leasehold Improvement Loan
A loan used to fund improvements to leased commercial space. These loans help tenants customize spaces to meet business needs while preserving capital for operations.
Lien
A legal right or claim against a property used as collateral. Commercial properties may have multiple liens affecting ownership and priority of claims in case of default.
Line of Credit (LOC)
A flexible loan from a financial institution that allows borrowing up to a set limit. Commercial property owners often maintain lines of credit for unexpected expenses, renovations, or opportunistic acquisitions.
Loan-to-Value Ratio (LTV)
A ratio that compares the loan amount to the appraised value of the property. Florida commercial lenders typically offer LTVs ranging from 65-80% depending on property type, borrower qualifications, and market conditions.
M
Mezzanine Financing
A hybrid of debt and equity financing typically used in expansions or acquisitions. Mezzanine financing bridges the gap between senior debt and equity in complex commercial real estate capital stacks.
Mortgage Broker
A professional who connects borrowers with lenders. Commercial mortgage brokers in Florida maintain relationships with multiple funding sources to secure optimal financing terms for their clients.
Maturity Date
The date on which a loan must be fully repaid. Commercial mortgages often have shorter maturity dates than their amortization periods, resulting in balloon payments at maturity.
N
Net Operating Income (NOI)
Income from property after operating expenses but before debt service and taxes. NOI is a critical metric for commercial property valuation and loan qualification in Florida's investment market.
Non-Recourse Loan
A loan secured by collateral, but the borrower is not personally liable beyond the collateral. Non-recourse commercial financing offers protection for investors but typically requires stronger property performance and lower LTVs.
Notice of Default
A formal notice that a borrower has defaulted on a loan. Commercial lenders must follow specific legal procedures when issuing notices of default in Florida.
O
Operating Expenses
Costs associated with running a property or business, excluding debt service. Efficient management of operating expenses is essential for maximizing NOI and maintaining loan compliance.
Origination Fee
A fee charged by lenders for processing a new loan. Commercial loan origination fees in Florida typically range from 0.5% to 2% of the loan amount depending on loan type, size, and complexity.
P
Prepayment Penalty
A fee charged for paying off a loan before the agreed term. Commercial mortgages often include prepayment penalties to compensate lenders for lost interest income, with terms varying by lender and loan type.
Principal
The original amount borrowed on a loan, excluding interest. As principal is paid down over time, borrowers build equity in their commercial properties.
Promissory Note
A written promise to repay a specified amount over a defined term. Commercial loan promissory notes detail the legal obligations of borrowers regarding repayment, terms, and conditions.
Q
Quick Ratio
A liquidity metric measuring a company's ability to meet short-term obligations with quick assets. Lenders evaluate quick ratios when assessing a business's financial health for commercial loan applications.
R
Recourse Loan
A loan in which the lender can pursue the borrower's other assets in case of default. Most traditional commercial loans in Florida are recourse loans, requiring personal guarantees from business owners or investors.
Refinancing
Replacing an existing loan with a new one, often to get better terms. Commercial property owners refinance to lower interest rates, extend terms, cash out equity, or restructure debt to improve cash flow.
Return on Investment (ROI)
A measure of profitability calculated as net profit divided by cost of investment. ROI helps investors compare the relative efficiency of different commercial property investments in Florida's diverse markets.
S
SBA Loan
A loan backed by the Small Business Administration, offering favorable terms. SBA 504 and 7(a) programs are popular for owner-occupied commercial real estate purchases in Florida, providing lower down payments and longer terms than conventional financing.
Second Mortgage
A subordinate loan secured against the same property as the first mortgage. Commercial property owners use second mortgages to access equity without refinancing their primary loans, though at higher interest rates reflecting the increased risk.
Security Agreement
A legal document that grants a lender a security interest in a borrower's collateral. Commercial loans typically include comprehensive security agreements detailing lender rights to property and other assets.
Servicing
The management of a loan from disbursement through repayment. Loan servicing for commercial mortgages includes payment collection, escrow management, and borrower communication throughout the life of the loan.
T
Term Loan
A loan with a fixed repayment schedule and set term. Traditional commercial mortgages are structured as term loans with regular monthly payments and defined maturity dates.
Title Insurance
Insurance that protects against financial loss from defects in a property title. Commercial lenders require title insurance to protect their security interests in financed properties.
Turnkey Property
A property that is ready for immediate use or occupancy. Turnkey commercial investments appeal to passive investors seeking immediate income without renovation or leasing requirements.
U
Underwriting
The process of evaluating a borrower's risk and determining loan eligibility. Commercial loan underwriting in Florida involves thorough analysis of property value, financial performance, market conditions, and borrower credentials.
Unsecured Loan
A loan not backed by collateral. While less common in commercial real estate, unsecured business loans may be available to established companies with strong credit and cash flow for smaller projects or working capital.
V
Valuation
An estimate of the worth of a business or property. Professional valuations are essential for commercial loan approvals, with lenders using these assessments to determine appropriate loan amounts.
Variable Interest Rate
An interest rate that fluctuates over the life of the loan. Commercial mortgages with variable rates often offer lower initial costs but introduce uncertainty as payments may increase with market rate changes.
W
Working Capital
The difference between a company's current assets and current liabilities. Sufficient working capital is essential for businesses seeking commercial property financing, demonstrating operational stability and liquidity.
Wraparound Loan
A new loan that includes the existing loan and adds additional funds. Wraparound financing can be useful in commercial transactions when assuming existing loans is more advantageous than complete refinancing.
Y
Yield Maintenance
A prepayment fee designed to compensate lenders for the loss of future interest income. Commercial loans with yield maintenance clauses require borrowers to pay the present value of foregone interest when prepaying, discouraging early payoffs during falling interest rate environments.
Understanding Commercial Lending Terms is Key to Investment Success
Navigating Florida's commercial real estate market requires more than just identifying good properties—it demands a solid understanding of the financial terminology that governs transactions and funding. By mastering these essential commercial lending terms, investors can:
- Communicate more effectively with lenders, brokers, and other professionals
- Compare financing options with confidence and clarity
- Identify the most advantageous loan structures for specific investment goals
- Avoid costly misunderstandings during the lending process
- Make more informed decisions about property acquisitions and financing
Whether you're a seasoned commercial property investor or just entering the market, this glossary serves as your essential reference guide to the specialized language of commercial real estate finance in Florida.
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