A CMBS loan is commercial mortgage-backed security, that is well-regarded because of the relatively low interest rates associated with this lending instrument. As well as the fact that they are available to borrowers with credit history difficulties. Let’s go a little bit more in-depth to see what the pros vs cons analysis yields. CMBS loans could be just the thing you need to get your real estate portfolio off the ground.
CMBS Loans: The Benefits
In particular, CMBS loans are of the non-recourse variety. This means that you needn’t worry about collateral reclamation in the event of default. Essentially, your personal property isn’t at stake. But of course, your credit history will take a hit if you don’t repay the loan. Beneficially, they’re available to borrowers who can’t get other types of loans due to spotty credit histories and bankruptcies on their record.
During your search for cmbs loans, you’ll also find that a large amount of competition results in really good rates – better than those offered by traditional bank loans. Many of them can be employed for cash-out refinancing, too, making even more funds available for potential business expansion, renovations, inventory, etc.
CMBS Loans: The Drawbacks
There are several drawbacks to the cmbs loan; the biggest one is the inability to pay it off early without suffering a prepayment penalty. This penalty can come in one of several ways – either through defeasance or yield maintenance payments. Since CMBS loans are already high risk (they don’t depend strongly on credit history), you’ll be unable to find one that allows secondary financing. Similar to mortgage payments with most lenders, you’ll also need to have an escrow equivalent with which to prove that you can repay the loan in theory. These reserves must be able to recompense the loan amount, as well as any associated taxes and insurance.
To learn more about cmbs loans, check out the Means Commercial Capital resources on the matter. Reach out to our finance and business experts via the web form if you have any questions or requests.