Can You Refinance an SBA 7(a) Loan with a CMBS Loan?
If you’re a business owner that currently has an SBA 7(a) loan on a commercial real estate property, you may want to consider refinancing it with a fixed-rate CMBS loan. This is especially the case if you want to reduce your interest rate— since SBA 7(a) loan rates are typically higher than conduit loan rates. Borrowers with variable-rate SBA 7(a) loans may also want to refinance their loan due to the increased financial security of fixed-rate conduit financing.
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If you’re a business owner that currently has an SBA 7(a) loan on a commercial real estate property, you may want to consider refinancing it with a fixed-rate CMBS loan. This is especially the case if you want to reduce your interest rate— since SBA 7(a) loan rates are typically higher than conduit loan rates. Borrowers with variable-rate SBA 7(a) loans may also want to refinance their loan due to the increased financial security of fixed-rate conduit financing.
Despite the interest rate benefits of CMBS loans, it’s important to realize that nearly all conduit loans are partially-amortizing balloon loans; loans with 5,7, or 10-year terms with 20-25 year amortizations. In contrast, SBA 7(a) loans are fully amortizing and do not require borrowers to make a balloon payment at the end of the loan term. For that reason, SBA 7(a) borrowers looking to refinance with a CMBS loan should be prepared to refinance the CMBS loan again at the end of its term, whether with a bank loan, a loan from a private lender, or even with another CMBS loan.
Related Questions
What are the benefits of refinancing an SBA 7(a) loan with a CMBS loan?
Refinancing an SBA 7(a) loan with a CMBS loan can provide several benefits, including a lower interest rate, increased financial security with fixed-rate financing, and the potential for cash-out refinancing. CMBS loans typically have five- to 10-year terms, with 20-25 year amortizations, and are partially-amortizing balloon loans. In contrast, SBA 7(a) loans are fully amortizing and do not require borrowers to make a balloon payment at the end of the loan term.
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Source: www.commercialrealestate.loans/commercial-real-estate-glossary/refinancing
What are the risks associated with refinancing an SBA 7(a) loan with a CMBS loan?
Refinancing an SBA 7(a) loan with a CMBS loan can be beneficial in terms of reducing interest rates and providing financial security with fixed-rate conduit financing. However, there are some risks associated with this type of refinancing.
The most significant risk is that CMBS loans are typically partially-amortizing balloon loans, meaning that borrowers will need to refinance the loan again at the end of its term. This could be done with a bank loan, a loan from a private lender, or even with another CMBS loan.
In addition, CMBS loans generally have stricter prepayment penalties than SBA 7(a) loans, and there is a general prohibition on supplemental financing.
What are the eligibility requirements for refinancing an SBA 7(a) loan with a CMBS loan?
The eligibility requirements for refinancing an SBA 7(a) loan with a CMBS loan are similar to those for an SBA 7(a) loan. Generally, borrowers must have a credit score of at least 690, no bankruptcies in the past three years, a minimum down payment of 10%, a paid franchise fee prior to loan fund release (for franchisees), a clean criminal history, and no current federal debt. The business must also be a for-profit entity, a small business by definition, based in the United States, have invested equity, and have exhausted all other financing options. Source
What are the costs associated with refinancing an SBA 7(a) loan with a CMBS loan?
The costs associated with refinancing an SBA 7(a) loan with a CMBS loan will depend on the lender and the loan terms. Generally, CMBS loans have competitive interest rates and are fully non-recourse and fully assumable. However, they also typically have strict prepayment penalties and a general prohibition on supplemental financing. Additionally, CMBS loans are usually partially-amortizing balloon loans, meaning that borrowers will need to refinance the loan again at the end of its term.
For more information on the costs associated with CMBS loans, please see What Are the Costs of CMBS Loans?.
What are the advantages of refinancing an SBA 7(a) loan with a CMBS loan?
Refinancing an SBA 7(a) loan with a CMBS loan can offer several advantages, including a lower interest rate, increased financial security with fixed-rate financing, and the potential for cash-out refinancing. CMBS loans also typically have longer terms and longer amortizations than bank financing, which often has five-year terms with 10- to 20-year amortizations. Finally, CMBS loans are far more focused on a property's financials than a borrower's credit, which makes them easier to get approved.
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