Just like almost any type of loan, there are both perks and drawbacks to CMBS loans. However, the niche for CMBS loans is to provide incredibly low rates of interest to help finance borrowers who might not otherwise qualify for loans. However, along with these low interest rates, there are harsher penalties for failing to make payments than there would be on a traditional loan.
Pros of CMBS Loans:
CMBS loans have some positives to them including the following:
- Available to a wide variety of borrowers including those who may not be eligible for traditional loans from a traditional lender.
- Lower interest rates than traditional loans.
- Loan rates are competitive to traditional loans from regular lenders (sometimes these loans can beat the loans from other traditional lenders).
- Helps businesses get the funds they need to expand past their current size.
These are just some of the pros of CMBS loans.
Cons of CMBS Loans:
CMBS loans also have some negatives to them including the following:
- CMBS loans are hard to get early.
- Most (if not all) CMBS loans have prepayment penalty while only some allow yield maintenance (paying a fee to exit the contract early).
- People taking these loans must purchase and provide bonds and give them to the CMBS loan company to provide them a way to recover their money if they default on loans.
- There is no supplementary/secondary financing available through CMBS loans.
In the end, there are certain uses for CMBS loans, but they have their limitations and drawbacks and may not be for everyone. Please be sure to contact us for more information before committing to a long-term CMBS loan. We are always happy to help make sure that a CMBS loan option is the right option for you before you make the long-term commitment to a loan.