Commercial mortgage-backed securities or CMBS conduit loans are often misunderstood but are quite popular for many reasons. Your CMBS conduit loan starts out as a traditional loan. After the loan is issued, it gets placed in trust with other loans. Investors buy bonds or portions of the trust. As you pay off the loan, investors make their money back through the interest, which is dispersed to them per the terms of the trust.
CMBS Conduit Loans Offer Many Advantages to Borrowers
Typically, you’ll get lower interest rates with CMBS conduit loans. Your loan is a fixed term, but it can be quite short, like 10 years. Most conduit loans have a minimum amount, of $2,000,000 or more, but the collateral, the real estate, covers the loan. If you default, you have less risk. You lose the real estate, but you probably won’t be personally sued. CMBS conduit loans are only for commercial properties, such as office, retail or multi-family.
For borrowers, the best advantage is the lower interest rate. One point on a multi-million dollar loan over 10 years can add up to a lot of money. However, you cannot pay off a CMBS conduit loan early without penalties. If you want to pay off the loan, you generally have to provide another source of income, U.S. Treasury bonds, to replace the lost income the investors won’t receive.
Talk to Your Lender About CMBS Conduit Loans
CMBS conduit loans are competitive, but it’s important to determine whether the loan fits into your long-range plans. More borrowers qualify for these loans because the loan is based on the value of the real estate, not as much as the borrower’s credit score. But you may not be able to change the loan once you’re locked in.
Looking for CMBS conduit loans for your business? Contact Impact Commercial Capital today for more information.