A balloon payment is the lump sum principal balance that remains when a loan's term ends before it fully amortizes. Because commercial loans often use a longer amortization than their term, the borrower makes regular payments for years and then owes the entire remaining balance at maturity.
A loan with a 10 year term and a 25 year amortization leaves a large balance at year 10. Borrowers usually plan to refinance, sell, or pay off the balloon with other capital before it comes due. The lender sets the maturity date knowing this from the start.
The main risk is a maturity wall: if rates have risen or the property underperforms when the balloon is due, refinancing can be harder or more expensive. Planning the exit well before maturity is part of any sound deal.