The CMBS loan origination process involves several steps. First, the lender will analyze the borrower's loan application and determine their suitability for financing. The lender will then present the terms of the loan to the borrower and, if both parties agree, issue the funds. The most time consuming part of the process is the underwriting process, which is intended to determine whether the borrower presents a reasonable credit risk to the lender. The lender will require third-party reports, such as a full appraisal and Phase I Environmental Assessment, and will check into the borrower's credit history, net worth, and commercial real estate experience. After the loan is sold on the secondary market, it is typically switched to a loan servicing company.

CMBS loans can be advantageous for commercial real estate borrowers because they don’t require much scrutiny of the borrower. Rather, the loan is underwritten on the financial strength of the asset held as collateral. CMBS loans are generally provided with fixed interest rates and have terms of five to 10 years, with amortization periods of up to 30 years. Additionally, CMBS loans offer flexible underwriting guidelines, fixed-rate financing, and are fully assumable.

The major downside of CMBS loans is the difficulty of getting out the loan early. Most, if not all CMBS loans have prepayment penalties, and while some permit yield maintenance (paying a percentage based fee to exit the loan), other CMBS loans require defeasance, which involves a borrower purchasing bonds in order to both repay their loan and provide the lender/investors with a suitable source of income to replace it. Defeasance can get expensive, especially if the lender/investors require that the borrower replace their loan with U.S. Treasury bonds, instead of less expensive agency bonds, like those from Fannie Mae or Freddie Mac.

In addition, CMBS loans typically do not permit secondary/supplemental financing, as this is seen to increase the risk for CMBS investors. Finally, it should be noted that most CMBS loans require borrowers to have reserves, including replacement reserves, and money set aside for insurance, taxes, and other essential purposes. However, this is not necessarily a con, since many other commercial real estate loans require similar impounds/escrows.

In general, lenders will require asset statements, corporate documents, and personal financial records for a CMBS loan application. If the borrower is a business, additional information such as current leases and other corporate documentation may be needed. Source

The more documentation required, the longer it may take to close the loan. In general, most commercial real estate loans, including CMBS and bank loans, will take approximately 3 months to close. Source

CMBS loans are a type of financing that is provided by lenders who package and sell mortgages on to commercial mortgage-backed securities (CMBS) investors. These investors then receive the mortgage payments from borrowers. CMBS loans can be advantageous because they don’t require much scrutiny of a borrower. Rather, the loan is underwritten on the financial strength of the asset held as collateral. CMBS loans are generally provided with fixed interest rates and have terms of five to 10 years, with amortization periods of up to 30 years.

For borrowers with sufficient cash, say, 25%, who want to purchase an income-producing property, a CMBS loan is often significantly easier to get approved for, and will usually offer rates very competitive with bank financing (if not substantially better). In many cases, banks will only offer 5-year loans for commercial properties, and will generally put a lot of emphasis on a borrower’s credit score, net worth, and commercial real estate experience. This is not the case for CMBS financing, where the property itself is the most important factor in the loan approval process.

Unlike banks, which generally keep loans on their balance sheets, CMBS lenders pool their loans together, creating commercial mortgage backed securities, and selling them to investors on the secondary market. Due to risk retention rules, CMBS lenders do have to keep 5% of each loan on their balance sheet. However, this does not generally change anything for the average borrower.

When it comes to commercial real estate lending, there are typically two major kinds of loans, CMBS loans, also known as conduit loans, and portfolio loans. Conduit loans and portfolio loans have several key differences— and borrowers should be aware of them before deciding which type of commercial real estate financing best fits their individual needs.

The key differences between CMBS loans and other types of commercial real estate financing are:

• CMBS loans are provided by lenders who package and sell mortgages on to commercial mortgage-backed securities (CMBS) investors, while portfolio loans are kept on the lender's balance sheet.
• CMBS loans don't require much scrutiny of a borrower, while banks will generally put a lot of emphasis on a borrower’s credit score, net worth, and commercial real estate experience.
• CMBS loans are generally provided with fixed interest rates and have terms of five to 10 years, with amortization periods of up to 30 years, while portfolio loans may have different terms.
• CMBS borrowers will not continue to deal with the same lender that originated their loan during the remainder of its life, while portfolio loan borrowers may.