Commercial

Our Owner occupied property loans are some of the best in the country. If you are working with your local bank, you will want to tak with as well. Our terms can go as long as 30 years, and the LTV is typicaly higher than you will find with your local bank.

Cash flow and DCR can really improve by adding 5-10 years to the term!

Call Brett Swearingen today at 800-557-0682 to get started on your approval and closing in as fast as 90 days!

Understanding the DSCR and Commercial Mortgage Lending

One of the most frequent reasons a commercial loan is denied is because the property does not meet the commercial lender's minimum DSCR requirements. Understanding how a commercial mortgage lender calculates the DSCR can be helpful to know when applying for a commercial loan.

DSCR = NOI/Total Debt Service

A common misconception made by borrowers when apply for a commercial mortgage loan is that the bank or commercial lender only uses the expenses from the property when calculating the NOI.  Commercial Lenders use the actual expenses plus additional holdbacks, such as, off-site management, vacancy, replacement reserves, repairs and maintenance, etc. Commercial lenders add these numbers to the expenses for several reasons, including, should the borrower default - management fee holdback, should the property lose a tenant(s) -vacancy factor, increase in costs, buffer for unexpected repairs, etc.

Calculating the Debt Service Coverage Ratio - DSCR -

Here is a basic example of how a commercial mortgage lender calculates the DSCR for a commercial loan request. The lender holdbacks are highlighted in blue, remember these are not actual expenses, but they are deducted from the property's gross income.

Gross Rents $1,000,000
Other Income  
Total Annual Gross Income $1,000,000
Less 5% Vacancy & Collection Loss $50,000
  ________
Effective Gross Income: $950,000
Real Estate Taxes $15,000
Property Insurance $5,000
Repairs & Maintenance $5,000
Pest Control $5,000
Janitorial $5,000
Utilities $5,000
5% Off Site Management Reserve $50,000
Replacement Reserves $0.15 per unit $15,000
Total Operating Expenses: $105,000
Net Operating Income (NOI) $845,000

Now that we have calculated the NOI, we must calculate the total debt service for the property, or simply determine the commercial mortgage loan payment consisting of only the principal and interest. We do not include the taxes and insurance as they are accounted for in the expenses of the property.

To calculate the debt service coverage ratio, simply divide the net operating income (NOI) by the commercial mortgage loan payment.
 
Commercial Loan Size: $10,000,000 First Mortgage
Interest Rate: 6.5%
Term: 30 Years
Annual Payments (Debt Service) = $758,475

Now we can calculate the DSCR:
DSCR = Net Operating Income (NOI) = $845,000
Total Debt Service $758,475
DSCR = 1.10

What this example tells us is that the cash flow generated by the property will cover the new commercial loan payment by 1.10x. This is generally lower than most commercial mortgage lenders require. Most lenders will require a minimum DSCR of 1.20x.

If a DSCR is 1.0x, this is called breakeven, and a DSCR below 1.0x would signal a net operating loss based on the proposed debt structure.

Owner Occupied Property

Owner Occupied Property

This is a great way to own a property with little down and great long term rates.

NON SBA Owner Occupied

NON SBA Owner Occupied

This is a great loan for owners who do not fit in the SBA mold, but want the benifits of long term fixed rates, with a high LTV.