A Credit Tenant Lease (CTL) or Conventional (Bank) Loan – Which Is Best for My NNN Deal?

Many good high quality, single tenant, internet leased properties qualify for each credit score tenant lease (CTL) financing and traditional business mortgage lending. Net lease property buyers ought to contemplate the professionals and cons of every earlier than deciding which sort of mortgage to decide to.

CTL lending is usually greatest for the long run revenue investor who needs everlasting, excessive leverage, fastened price, absolutely amortized financing and wishes velocity and certainty of execution. Bank lending has a decrease preliminary (however not general) value and may supply a bigger number of phrases and circumstances. Banks are greatest for buyers who want choices, do not want most leverage (have giant down-payment out there), and who are usually not positive if they may maintain a property for the long term.

The Difference

CTL lending combines elements of economic mortgage lending with specialised funding banking in-order-to shut offers. A CTL banker points and sells personal placement company bonds which are secured by the lease on the actual property. The proceeds of the bond gross sales are used to fund a business mortgage mortgage for the borrower. The mortgage is run by a 3rd celebration Trustee all through the lifetime of the deal.

Traditional business mortgages are commonplace loans secured by mortgage liens towards the actual property, the revenue the property produces and the credit score of the borrower. Banking establishments originate a mortgage and fund the deal both by promoting the mortgage to an investor (personal or Government) or by lending its personal funds and holding the mortgage in its portfolio.


The ongoing credit score crunch has pressured banks to tighten up their lending standards. It is very unlikely that a business financial institution will supply any greater than 75% loan-to-value (LTV) on any deal in the present day. Banks haven’t any incentive to take pointless danger; they will borrow cash from the Fed (Federal Reserve Bank) at zero% % and purchase 10 yr Treasury Bonds at 2% incomes 2 factors danger free. They will cross on excessive leverage loans and solely lend the place they’ve giant quantities of protecting fairness.

CTL lenders will lend as much as 100% LTV (lease charge valuation) on a non-recourse foundation. They are within the enterprise of loaning the complete, present money worth of a lease (towards the assured future revenue). CTL bankers, with out query, make the very best mortgage presents within the business actual property finance business.

Speed and Certainty of Execution

CTL loans can shut in about 1/third of the time it takes to shut a standard business mortgage. CTL offers have been recognized to be accomplished, from-start-to-finish, in as-little-as 45 days (unprecedented on the planet of economic banking) however usually take 60.

Bank loans take no less than 60 days, typically 180 or extra. Also, as a result of CTL offers both qualify or does not, a banker may give a borrower a strong sure or no in a short time. There are a thousand methods a financial institution mortgage can fall by way of however, as soon as a CTL banker commits to a deal and a borrower indicators off, there’s a close to 100% certainty of execution.


CTL loans are all non-recourse loans secured by the revenue that the lease produces.

Bank loans are often, although not all the time, normal, credit score pushed, full recourse loans with liens towards the borrower in addition to the actual property.


A CTL mortgage may have larger preliminary prices due to the funding banking facet to the deal and the truth that a 3rd social gathering Trustee have to be concerned. However, over the life cycle of a property, CTL tends to be inexpensive since you by no means should refinance. At the top of a CTL mortgage the borrower owns the property free and clear.

Bank loans have to be recapitalized or paid off on the finish of every time period, often three, 5, 7 or 10 years. Having to refinance so typically leads to larger general value of capital.


CTL lending is considerably much less versatile than normal financial institution lending. The bonds bought by CTL bankers are regulated by the securities industries and the insurance coverage industries. CTL lenders should adhere to very strict standards and usually are not allowed to deviate from the requirements. A deal qualifies for CTL or it doesn’t; there isn’t any leeway.

Banks usually have many lending platforms obtainable to them; they’re able to tailor a mortgage to a specific state of affairs or a specific property.


Banks can supply self amortizing loans however usually problem mortgages with three,5,7 or 10 yr maturities amortized over 10-25 years with balloon funds due on the finish of every time period. Banks may also supply both fastened or adjustable charges.

CTL loans are all absolutely amortized, fastened fee, long run loans with phrases coterminous with the lease.

In Summary

Banks supply a bigger number of mortgage merchandise and may mortgage towards extra kinds of properties and tenants. Bank lending additionally tends to be inexpensive within the short-run.

On the draw back, banks aren’t inclined to supply excessive LTV loans and can usually require the borrower to ensure a mortgage. Further, financial institution loans are infamous for falling by way of and failing to shut for any quantity or causes (or no purpose at-all).

CTL loans are inflexible of their qualification requirements however shut with close to 100% certainty. They shut quicker and are inexpensive over the lifetime of a deal. CTL bankers place no restrictions on LTV or LTC (loan-to-cost) and are non-recourse loans. Also, it have to be famous that CTL loans are administered by a 3rd celebration Trustee all through all the lifetime of a mortgage. The trustee will acquire the lease, pay the mortgage and distribute the revenue to the borrower each month.

CTL loans are greatest for purchase and maintain buyers who need to lock in at present’s low fee for the long run. They are additionally applicable for buyers who want excessive leverage financing or who wish to shut as-soon-as-possible.

Bank loans are greatest for buyers with offers that want some flexibility within the underwriting course of. Bank loans will value much less up-front and extra offers will qualify. Banks supply extra mortgage decisions to certified debtors.

Single tenant, internet lease actual property buyers who perceive their choices shall be nicely outfitted to make one of the best financing selections for themselves and their companies.

Source by Glenn Fydenkevez

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