If you are looking to obtain a commercial mortgage from a commercial mortgage lender for the first time, you may be confused by some of the lending terms that are thrown around. Commercial mortgages have three sub-types: first liens, mezzanine notes and preferred equity. While first liens are fairly self-explanatory as the first mortgage loans you take on commercial properties, the other two types may leave you scratching your head. Here are some clearer definitions and explanations for these commercial loan sub-types and when you might want or need them in the future.

Mezzanine Notes

Mezzanines are typically those upper-tier seats in a performing arts center or theater that are meant to add something extra to the view. In the world of commercial mortgages, a mezzanine note is a second or third mortgage taken on a commercial property when you need additional money for restoration, redevelopment or repairs. (You can take out a mezzanine note after you have already had a first lien on a property and have proven that you are paying on it regularly.) They are the commercial equivalent to a homeowner's second or third mortgage on their house, except that the amounts you can apply for and receive on commercial properties are significantly larger. The repayment terms are also very different, depending on the capital used to help finance your mezzanine note.

Preferred Equity

You might think by the sound of this loan that a lender prefers you have quite a bit of equity in your commercial property before requesting a loan, but that is not even close. To acquire a commercial mortgage loan through preferred equity, you need to be a publicly traded company first; the loan you apply for is based on the number of shares of stock in your company that are held by preferred stockholders, as opposed to common stock.

The value of the total shares of preferred stock is what dictates how large of a loan you can borrow. The value of these shares secures the loan, and if there are any money problems such that you cannot make your loan payments as agreed, these shares may become the property of the lender. You could also lose the building that the commercial mortgage is tied to. It is a much riskier type of commercial loan, and for that reason (as well as the fact that you have to have stock and stockholders to begin with), most borrowers stick to first liens and mezzanine notes whenever possible.