Prior to the Savings & Loan crisis of the 1980's, U.S. banks tended to be more aggressive about lending on commercial properties. Primary emphasis was often placed on the perceived market value of the property.

Today, however, lenders tend to focus primarily on the cash flow of the property. Lenders want to see that the income from the property (rents) far exceeds the expenses of the property.

When dealing with owner occupied property, whether another entity formally holds the property or not, the market value of renting the property may prove to be the critical factor on which the mortgage application rests.

For owner occupied business purchases, lenders focus not only on how well the business has performed over a two to three year period, they also focus on whether the business is supported by an individual with deep financial resources. In contrast to lending practices of a decade ago, personal guarantees of small commercial mortgages are rather commonplace today.

Commercial mortgage applications also are subject to strong environmental concerns. In light of environmental litigation throughout the country, lenders are routinely requiring formal environmental impact studies to access potential exposure for liability.

Given that the basic transaction costs of commercial mortgages (such as fees for the appraisal, bank attorney and environmental studies) far exceed such costs for residential mortgages, a commercial mortgage seldom makes sense for small amounts, when other avenues to raise money are available.

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