The main difference between conduit financing and traditional commercial real estate loans is the underwriting guidelines. Traditional loans place great scrutiny on borrowers, often times limiting what is possible. CMBS loans, on the other hand, are readily available to new commercial property investors. Investors that cannot meet the strict conventional liquidity and possible net worth minimums can opt for a CMBS loan and receive the funding they need without all the red tape — quite often with superior rates and terms.
CMBS loans are generally available with 10-year fixed-rate terms. Most of the time, they are non-recourse, and have a maximum LTV of 75%. In terms of prepayment, conduit loans often allow for defeasance, though yield maintenance can be an option in some cases.
Pooling together single loans makes them more attractive to investors. It also allows investors to enter the commercial mortgage market. This increases the amount of available funding for commercial mortgage loans, and forces mortgage loans to be aggressively priced.