Bank, CMBS, or debt fund? Choosing the right lender

Not every lender wants every loan. Banks, CMBS lenders, and debt funds each solve a different problem, and each one prices risk in its own way. Choosing the right source early saves time, protects the business plan, and avoids a loan that fits today but works against you later.

Banks: relationship lending

Banks lend from their own balance sheet and usually hold the loan. That gives them flexibility, and it means the relationship matters.

• Terms are often shorter, with floating rates or rates fixed for a set period.
• Recourse or a partial guarantee is common, especially on smaller loans.
• Deposits and a broader banking relationship are often expected.
• Prepayment is usually simpler than with securitized loans.

Banks tend to fit stabilized or lightly transitional assets, owner occupied real estate, and borrowers who value a local decision maker. The tradeoff is that leverage can be conservative. A bank's appetite can also change quickly when its regulators or internal concentration limits tighten.

CMBS: standardized and non recourse

CMBS loans are pooled and sold to bond investors. The lender originates each loan to a set of standard rules. A servicer then manages it for the life of the loan.

• Loans are typically non recourse, aside from standard carve outs.
• Terms are often long and fixed.
• Leverage can be competitive on stabilized, cash flowing property.
• Prepayment usually means defeasance or yield maintenance.

The structure suits owners who plan to hold a stable asset for the full term. It is less forgiving if plans change. Assumptions, partial releases, and modifications go through the servicer. That process takes time and follows the loan documents closely.

Debt funds: speed and flexibility at a price

Debt funds lend private capital and are built for situations that banks and CMBS lenders will not take on. Think lease up, renovation, repositioning, a tight closing timeline, or a sponsor with a complicated story.

• Loans are usually short term and floating rate, often with extension options.
• Proceeds can be based on a future value, with funds held back for capital work.
• Pricing and fees are generally higher.
• An interest rate cap is often required.

A debt fund loan is a bridge to something else. The exit, whether a sale or a permanent refinance, should be clear before you sign.

How to choose

Start with the business plan, not the rate. A few questions narrow the field quickly:

1. Is the property stabilized today, or does it need time and capital?
2. How long do you expect to hold it?
3. How much flexibility do you need to sell, refinance, or bring in a partner?
4. Can you provide a guarantee, and how much exposure is acceptable?
5. How fast does the deal need to close?

A stabilized asset with a long hold often points to CMBS or a longer term bank loan. A value add plan on a short timeline often points to a debt fund. An owner with deep banking ties and a moderate leverage need may be best served by a bank. Life insurance companies and agency lenders also belong in the conversation for certain property types, so the field is wider than three options.

Compare the whole loan, not the headline rate

Two quotes with similar rates can look very different over the life of the loan. Compare these terms side by side:

• Loan proceeds and how they are sized
• Recourse and guarantee requirements
• Reserves and holdbacks
• Covenants and reporting
• Prepayment terms and extension conditions
• Total cost to close

Also ask how each lender handles a problem. A lender that can work through a difficult quarter with you is often worth more than a small difference in pricing.

Before you approach any lender, it helps to know what the property can support. Our debt sizing tool gives a quick view of loan size under common lender tests. When you are ready to compare sources for a specific deal, reach out to our team and we can walk through the options with you.