Why are commercial loans riskier than residential loans?

Commercial loans tend to be riskier than residential loans for two reasons: they are larger, and the business world can be very volatile.

Large Loans

Commercial loans often top out in the tens of millions of dollars. Simply purchasing a small commercial property can cost several million, which is much higher than the average home cost. The higher the loan, the higher the burden of repayment, and the higher the chance of default.

Market Volatility

A personal loan is made based on an individual's income. Unless that person loses his or her job and cannot find another with a salary at least as well paying, the income will remain the same or increase. Commercial loans are based on business profits, which are highly unpredictable and can drop substantially in a single year.