Real Estate

A Tenant Credit Lease (CTL) or a Conventional (Bank) Loan: Which is Better for My NNN Deal?

Many good-quality, single-tenant net leased properties qualify for both tenant credit lease (CTL) financing and conventional commercial mortgage loans. Net lease property investors should consider the pros and cons of each before deciding which type of loan to commit to.

CTL loans are generally best for the long-term income investor who wants permanent, high leverage, fixed rate, fully amortized financing, and desires speed and certainty of execution. Bank loans have a lower initial cost (but not generally) and may offer a greater variety of terms and conditions. Banks are better for investors who need options, don’t need maximum leverage (they have a large down payment available), and aren’t sure if they’ll hold onto a property long-term.

The difference

CTL loans combine aspects of commercial mortgage lending with specialized investment banking to close deals. A CTL banker issues and sells privately placed corporate bonds that are secured by the lease of real estate. The proceeds from the bond sales are used to finance a commercial mortgage loan for the borrower. The loan is administered by a third-party Trustee during the term of the agreement.

Traditional commercial mortgages are standard loans secured by mortgage liens on the real property, the income the property produces, and the borrower’s credit. Banking institutions originate a loan and finance the deal either by selling the loan to an investor (private or government) or by lending their own funds and holding the loan in their portfolio.

to take advantage of

The current credit crisis has forced banks to tighten their lending criteria. It is highly unlikely that a commercial bank will offer more than 75% loan-to-value (LTV) on any deal today. Banks have no incentive to take unnecessary risks; they can borrow money from the Fed (Federal Reserve Bank) at 0% percent and buy 10-year Treasury Bonds at 2% earning 2 points without risk. They will pass on high leverage loans and will only lend when they have large amounts of protective capital.

CTL lenders will lend up to 100% LTV (Lease Fee Valuation) without recourse. They are in the business of lending the full current cash value of a lease (against guaranteed future income). CTL bankers undoubtedly make the highest loan offers in the commercial real estate finance industry.

Speed ​​and Certainty of Execution

CTL loans can close in about 1/3 of the time it takes to close a conventional commercial mortgage. CTL transactions have been known to complete, start to finish, in as little as 45 days (unheard of in the world of commercial banking), but typically take 60.

Bank loans take at least 60 days, sometimes 180 or more. Also, because CTL offers qualify or not, a banker can give a borrower a solid yes or no very quickly. There are thousands of ways a bank loan can fail, but once a CTL banker commits to a deal and the borrower signs it, there is close to 100% certainty of execution.


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

Bank loans are usually, but not always, standard, credit-driven, full-recourse loans with liens against the borrower and the real estate.


A CTL loan will have higher upfront costs due to the investment banking aspect of the deal and the fact that a third party trustee must be involved. However, over the life cycle of a property, CTL tends to be less expensive because you never have to refinance. At the end of a CTL loan, the borrower owns the property free and clear.

Bank loans must be recapitalized or canceled at the end of each term, usually 3, 5, 7 or 10 years. Having to refinance so often results in a higher total cost of capital.


CTL loans are somewhat less flexible than standard bank loans. The bonds sold by CTL bankers are regulated by the securities and insurance industries. CTL lenders must meet very strict criteria and are not allowed to deviate from the standards. A deal qualifies for CTL or not; there is no room for manoeuvre.

Banks generally have many lending platforms available to them; they can tailor a loan to a particular situation or a particular property.


Banks may offer self-depreciating loans, but they generally issue mortgages with maturities of 3, 5, 7, or 10 years amortized over 10 to 25 years with balloon payments at the end of each term. Banks may also offer fixed or adjustable rates.

CTL loans are long-term, fully amortized, fixed-rate loans with terms matching the lease.

In summary

Banks offer a greater variety of loan products and can lend against more types of properties and tenants. Bank loans also tend to be less expensive in the short term.

On the downside, banks are not inclined to offer high LTV loans and will generally require the borrower to guarantee a loan. Also, bank loans are notorious for failing to close for any number of reasons (or no reason at all).

CTL loans are rigid in their qualification standards, but close with close to 100% certainty. They close faster and are less expensive over the life of a deal. CTL bankers do not place restrictions on LTV or LTC (loan at cost) and they are non-recourse loans. Also, it should be noted that CTL loans are serviced by a third-party trustee for the life of a loan. The trustee will collect the rent, pay the mortgage, and distribute the proceeds to the borrower each month.

CTL loans are best buy-and-hold for investors who want to lock in the current low rate for the long term. They are also suitable for investors who need high leverage financing or who are looking to close as soon as possible.

Bank loans are best for investors with deals that need some flexibility in the underwriting process. Bank loans will cost less up front and more businesses will qualify. Banks offer more loan options to qualified borrowers.

Single tenant net lease real estate investors who understand their options will be well equipped to make the best financial decisions for themselves and their businesses.

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