A longer-term loan on a finished, leased property that replaces the construction or bridge loan and is repaid from the property's income.
The OCC handbook uses “term financing” for loans that refinance construction or bridge loans on properties that have reached stabilization, refinance other term debt, or finance the purchase of a stabilized property. Term loans that replace construction loans, it says, are sometimes called permanent loans or take-outs.
The name is relative. A permanent loan still matures; it is permanent only next to the short loan it replaces. What changes is the source of repayment. A construction lender is repaid by the next lender or a sale. A permanent lender is repaid month by month from rent, so it sizes the loan on the property’s net operating income.
Permanent money comes from several places. Banks and credit unions make these loans and keep them. The handbook also names life insurance companies, pension funds and commercial mortgage-backed securitizations, and says loans from those sources usually run 10 years or more at a fixed rate and are commonly non-recourse.
How it shows up in the data here
Permanent loans on leased property are most of what a bank reports as multifamily and non-owner-occupied balances held; loans on a business's own building are in owner-occupied. See multifamily books and investor CRE books. For multifamily loans made, with amount, rate and term, HMDA records feed loan comps. Life companies and securitized lenders file no call report and are not in these books.
Go further
- Loan comps: Multifamily loans made, from HMDA records.
- Amortization and balloon calculator: Payment and balance at maturity for a term loan.
- Amortization and balloon calculator: Payment, balance at maturity and interest paid, for a loan that amortizes over longer than it runs.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- Maximum loan calculator: The loan each test allows: DSCR, LTV and debt yield side by side, and which one binds.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
- Multifamily loan checklist for 5+ unit properties: A larger apartment loan can go to five kinds of lender. They want much the same package. They differ on recourse, term, prepayment, speed and what they ask of the sponsor.
- Investor commercial real estate loan checklist: On an investor property the rent pays the loan. The package is the evidence for the rent: who pays it, for how long, what it costs to collect, and who stands behind the borrower if it stops.
Related terms
- Take-out loan: The permanent loan that pays off a construction loan, or the commitment from a lender to make that loan once the project is finished and leased.
- Bridge loan: A short-term loan that carries a newly built or newly bought commercial property until it is leased and earning enough to be sold or refinanced with a permanent loan.
- Mini-perm: A medium-term loan, shorter than a permanent loan, that a bank makes on a finished property so the owner has time to lease it up before long-term financing.
- Construction loan: A short-term loan that pays for building or renovating a property, advanced in stages as work is finished and repaid from a sale or a permanent loan.
- Life company lender: A life insurance company that makes long-term, fixed-rate commercial mortgage loans with its own investment money and usually keeps them.
- CMBS conduit loan: A commercial property loan made to be pooled with other loans and sold to investors as commercial mortgage-backed securities, not kept by the lender that made it.
- Amortization: The schedule on which a loan's principal is paid down through regular payments. The amortization period sets the payment size and can be longer than the loan's term.
- Balloon payment: The lump sum of remaining principal due at the end of a loan's term when the regular payments did not pay the loan off in full.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.