While good credit, personal net worth, and liquidity are essential factors, commercial lenders rely heavily on the cash flow of the property or business for loan qualification.
When a lender underwrites a commercial loan for an investment property, they primarily look to the cash flow of the property. When a lender underwrites a commercial loan for an owner-user, they primarily look at the cash flow of the business.
The property or business’s net operating income (NOI) must exceed the proposed mortgage payment by at least 25% to 45%. In commercial finance, this is known as a debt service coverage ratio and the requirement is generally 1.25 to 1.45. Conduit lenders also require that the debt yield ratio exceed 9.0% to 10.0%.
There are a number of factors that determine the loan amount a borrower can obtain for commercial property and thus, the down payment that will be required. The main factors include property type, market value, loan type, and cash flow.
For example, lenders will generally provide 75% loan-to-value for a multifamily property with 5+ units. However, if the current and historical cash flow of the property does not support the lender’s required debt service coverage ratio, the loan will be limited as such.
C2 Commercial is well versed in all types of commercial loans and has access to the best lenders and pricing at local, regional, and national levels.
We intimately understand the nuances of commercial lending, which enables us to guide our borrowers through any transaction and to a successful closing. We advocate on behalf of our borrowers from negotiating terms to ensuring lenders are moving expeditiously from beginning to end. Our objective is to provide borrowers with the best service possible.
Commercial loan brokers are compensated by the borrower at closing through escrow.