CMBS & SBA Loan FAQ

A CMBS (Commercial Mortgage-Backed Security) loan is a non-recourse, fixed-rate commercial mortgage that is packaged with other loans and sold to investors as a bond. Terms are typically 10 years with 25–30 year amortization, LTV up to 75%, and rates tied to the 10-year Treasury plus a spread (currently T+245bps = 6.74%). The non-recourse feature means the lender's only collateral is the property itself.

A bank loan is held on the bank's balance sheet and allows renegotiation, modification, or forbearance. A CMBS loan is securitized and sold to bondholders — the servicer has very limited ability to modify terms. The tradeoff: CMBS offers the lowest fixed rates available (6.74% vs. 7.5–8.5% for bank loans) and non-recourse structure, but comes with strict cash management and fewer modification options.

A hotel PIP (Property Improvement Plan) refinance is a loan that simultaneously pays off the existing mortgage and funds brand-mandated renovations. The PIP reserve is escrowed at closing — typically $8,000–$25,000 per room — satisfying the franchise requirement without the owner needing out-of-pocket capital. First Realty Capital specializes in PIP CMBS refinances that also convert SBA 7(a) floating rate debt to fixed CMBS.

First Realty Capital delivers preliminary CMBS term sheets in 5–7 business days. Full loan commitment typically follows within 45–60 days of receiving a complete application package including property financials, rent roll, borrower entity information, and a third-party appraisal.

Most CMBS conduit lenders require a minimum loan of $2 million. First Realty Capital also arranges SBA 7(a) and SBA 504 loans starting at $500,000 for smaller transactions. For loans below $2M, SBA 504 or community bank conventional financing is typically the better option.

Yes. Many hotel owners with SBA 7(a) loans at prime + 2.75% (currently 9.50%) are refinancing into CMBS fixed-rate loans at 6.74%, saving $80,000–$150,000 per year in interest and eliminating floating rate risk. The refinance can also fund a pending PIP renovation at closing. The ideal timing is 3–5 years after opening, once RevPAR is stabilized and the asset is above the minimum DSCR threshold.

DSCR (Debt Service Coverage Ratio) is NOI (Net Operating Income) divided by annual debt service (principal + interest). CMBS conduit lenders typically require a minimum DSCR of 1.25×, meaning NOI must be at least 25% greater than the annual loan payment. For SBA 7(a), lenders typically require 1.15–1.20×. USDA B&I requires 1.20×.

The USDA Business & Industry Guaranteed Loan Program provides up to 80% government guarantee on rural commercial loans up to $25 million, at fixed rates for 30 years. Eligible properties must be in areas with populations under 50,000. In Florida, eligible counties include Osceola, Levy, Gilchrist, Lafayette, Dixie, and Jefferson. USDA B&I is particularly well-suited for rural assisted living facilities and hotels.

An SBA 504 loan uses a split structure: 50% conventional bank first lien + 40% SBA CDC debenture (fixed for 20–25 years) + 10% borrower equity. The SBA CDC portion is fixed at a below-market rate (currently ~6.0%) for the full term. Total blended rate is approximately 7.0%. Best for owner-occupied hotels, ALFs, and medical offices where the borrower occupies at least 51% of the property.

First Realty Capital arranges commercial loans nationwide, with primary origination focus on Florida, Texas, Tennessee, Georgia, North Carolina, and South Carolina. These six Sun Belt states have the strongest hotel PIP pipeline, ALF demand growth, and CMBS refinance maturity concentrations in our target loan range ($1M–$50M). We handle transactions nationally for loans above $5M.

Yes. CMBS loans typically carry either defeasance (purchasing Treasury securities to replace the loan collateral) or yield maintenance (a penalty ensuring the lender receives the same yield as if the loan ran to maturity) prepayment provisions. Both are designed to protect CMBS bondholders. Defeasance costs depend on the current Treasury curve — in a higher rate environment (like today), defeasance is relatively inexpensive because new Treasuries replace the loan income at a similar yield.

Defeasance is the CMBS prepayment mechanism where the borrower purchases a portfolio of U.S. Treasury securities that generates exactly the same cash flow as the remaining loan payments. The lender is effectively replaced by government bonds as collateral. Defeasance allows property sale or refinancing before loan maturity. In a rising rate environment, defeasance costs are lower because Treasuries yield more.