| Detail | Explanation |
|---|---|
| Bank loans are funded by | Deposits, held on the bank's balance sheet |
| CMBS loans are funded by | Bonds sold to investors through a securitization |
| Life company loans are funded by | Insurance company general account investments |
| Usually non-recourse | CMBS and life company loans |
| Usually most flexible after closing | Bank loans |
How do CMBS, bank, and life company loans compare?
Each lender type is shaped by where its money comes from. A bank lends deposits and keeps the loan. A CMBS lender pools loans and sells bonds, so the loan has to fit rating agency models and be serviced under a trust agreement. A life company invests policyholder premiums and wants long, safe, predictable income. The types of commercial lenders guide covers the wider field.
| Feature | Bank loan | CMBS loan | Life company loan |
|---|---|---|---|
| Who holds the loan | The bank | A securitization trust | The insurance company |
| Who you call after closing | Your banker | A master or special servicer | The life company's loan officer |
| Recourse | Often full or partial recourse | Non-recourse with carve-outs | Non-recourse with carve-outs |
| Rate type | Floating, fixed, or swapped | Fixed | Mostly fixed |
| Prepayment | Negotiated, often a declining schedule | Defeasance or yield maintenance | Yield maintenance, sometimes open windows |
| Main sizing tests | DSCR, LTV, and global cash flow | Debt yield, DSCR, and LTV | LTV and DSCR, set conservatively |
| Property preference | Broad, including owner-user and transitional | Stabilized income property across many markets | High-quality stabilized property in strong locations |
| Borrower entity | Flexible | Single-purpose entity | Single-purpose entity |
| Reserves and cash controls | Varies by bank | Ongoing reserves and springing cash management | Often lighter at lower leverage |
| Flexibility after closing | Highest, relationship driven | Lowest, bound by servicing rules | Moderate, direct with the lender |
How does a bank loan work?
Banks underwrite the property and the borrower together. Coverage, the guarantor's liquidity, deposits, and the rest of the relationship all feed the decision. That makes banks the most adaptable of the 3 for owner-user buildings, light transitional plans, and borrowers with a strong local track record.
The trade-offs are recourse, shorter terms with a balloon, and exposure to the bank's own concentration limits. When a bank pulls back from a property type, renewal can get harder even if the loan performs. Floating-rate bank loans often carry a swap, which brings its own breakage cost if the loan is repaid early.
How does a CMBS loan work?
A CMBS loan is originated to be sold into a bond pool. It is sized to rating agency style tests, with debt yield often acting as the hard limit, and it is usually non-recourse on a fixed rate for a long term. CMBS lenders will finance property types and markets that banks and life companies pass on, as long as the cash flow is stable.
The cost is rigidity. After closing, a master servicer handles routine requests and a special servicer takes over in a default, and neither can rewrite terms the way a portfolio lender can. Prepayment usually requires defeasance or yield maintenance, explained in yield maintenance vs defeasance.
How does a life company loan work?
Life insurance companies match long-dated liabilities with long-dated, fixed-income investments, so they favor low-leverage loans on well-located, well-leased property with strong sponsors. In return they tend to offer long fixed terms, full amortization options on some loans, and a direct relationship instead of a servicer.
Life companies are selective. Older buildings, weaker markets, heavy near-term rollover, and higher-leverage requests usually fall outside their box. Prepayment is typically yield maintenance, and rate locks at application are common.
Worked example: sizing the same property 3 ways
In this hypothetical example, a stabilized property earns $1,000,000 of net operating income and appraises at $16,000,000. Each lender uses the same hypothetical 6.50% rate and 30-year amortization so the example isolates the sizing tests. The tests are hypothetical and chosen to show mechanics, not to describe any lender's terms.
The loan is the lowest result across each lender's tests. The bank and CMBS loans are both limited by coverage, and the CMBS debt yield test would allow more. The life company loan is limited by loan-to-value. Try the tests on your own property with the loan sizing calculator.
| Hypothetical test | Bank | CMBS | Life company |
|---|---|---|---|
| LTV limit | 70% | 70% | 55% |
| Loan at LTV limit | $11,200,000 | $11,200,000 | $8,800,000 |
| DSCR minimum | 1.25x | 1.30x | 1.40x |
| Loan at DSCR minimum | $10,547,000 | $10,142,000 | $9,417,000 |
| Debt yield minimum | Not applied | 9.0% | Not applied |
| Loan at debt yield minimum | Not applied | $11,111,000 | Not applied |
| Maximum loan | $10,547,000 | $10,142,000 | $8,800,000 |
| Binding test | DSCR | DSCR | LTV |
Which one fits your deal
These hypothetical borrowers show how the choice usually sorts out.
- A business owner buying the building it occupies, with deposits it can move: bank loan, possibly compared against SBA options.
- A stabilized shopping center in a secondary market, owned by a sponsor who wants non-recourse debt and plans a long hold: CMBS loan.
- A newer, fully leased industrial building in a major distribution market with modest leverage needs: life company loan.
- An apartment property that may sell within a few years: bank loan or other floating-rate debt, since defeasance or yield maintenance could erase the sale proceeds.
- A property with a large lease expiring soon: bank or bridge financing until the space is renewed, since CMBS and life company underwriting will discount that income heavily.
What to compare across 3 term sheets
Capital Partners places permanent loans with banks, CMBS lenders, and life companies from $1M to $100M, and can run all 3 on the same property. Submit the property with the rent roll, operating statements, and hold plan for a principal review.
- Net proceeds after reserves, fees, and third-party costs
- Recourse and the carve-out list
- Prepayment cost at the year you realistically expect to sell or refinance
- Assumption terms if a buyer may want to take over the loan
- Who approves leases, alterations, and transfers after closing
- Cash management triggers and how they turn off
Common questions
Is a CMBS loan better than a bank loan?
It depends on the property and plan. A CMBS loan is usually non-recourse and fixed for a long term, which suits a stabilized property and a long hold. A bank loan offers more flexibility after closing and easier prepayment, usually with recourse.
Why are life insurance company loans hard to get?
Life companies invest to match long-term policy obligations, so they lend mainly on high-quality, well-leased property at conservative leverage with strong sponsors. Properties outside that profile usually go to banks, CMBS lenders, or debt funds.
Can you prepay a CMBS loan?
Yes, but usually through defeasance or yield maintenance, which can be expensive when rates have fallen since closing. Many CMBS loans also have a lockout period and an open window near maturity.
Are bank loans recourse?
Many are, through a full or partial personal guarantee. Some banks offer non-recourse or limited recourse loans on strong, stabilized properties with low leverage, but it varies by bank and deal.
Who services a CMBS loan after closing?
A master servicer handles payments and routine requests such as lease approvals. If the loan defaults or needs a major modification, it transfers to a special servicer that acts for the bondholders.
Send this deal to a principal
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