The short answer
A lender looks to the property or business cash flow first, the collateral second and the guarantor third. It tests them with debt service coverage, debt yield, loan to value, global cash flow and guarantor strength. Federal rules cap loan to value at the outer edge. The minimums on the other tests are each bank's own loan policy, so ask for them.
Three sources of repayment
A lender is paid back from the property’s or the business’s cash flow first. The OCC’s handbook for examiners says repayment of loans on income-producing property typically depends on the property’s ability to service the debt from cash flow. The collateral comes second: if the cash flow fails, the lender sells or takes the property. The guarantor comes third. The same handbook lists the tertiary repayment sources a bank may have “in the event of recourse” among the things a loan policy should cover.
Every test below is one of those three questions turned into a number.
The five tests
| Test | The question | Formula | A published rule |
|---|---|---|---|
| Debt service coverage | Does the cash flow pay the loan? | Cash flow divided by a year of debt service | SBA: 1.15x, 1.10x or 1.25x by loan type. Banks: own policy. |
| Debt yield | How large is the loan against the income, at any rate? | Net operating income divided by the loan | None. The OCC lists a minimum debt yield among policy items a bank may set. |
| Loan to value and loan to cost | How much of the borrower’s own money is in the property? | Loan divided by value, and by cost | Supervisory limits of 65% to 85% by kind of property. |
| Global cash flow | After everything the owners owe, is there still cover? | All cash flow divided by all debt service | SBA: 1.0x on a global basis. |
| Guarantor strength | If the property falls short, who can cover it, and will they? | Assets, liquidity, other obligations | None as a number. |
Debt service coverage
The OCC handbook defines it as net operating income divided by annual debt service, and says the right ratio depends on the amortization period and how steady the cash flow is. A lower ratio can be a prudent trade for a shorter amortization, or fit a property with long net leases to strong tenants. Properties with uneven cash flow, such as hotels or an owner who occupies the building with irregular earnings, may call for a higher one.
Two things trip borrowers. The first is the cash flow. Lenders underwrite their own net operating income, which may assume a market vacancy rate above or below the actual one and may charge expenses that are not cash today, such as a management fee and a reserve for replacements. The handbook adds that a coverage figure in a loan covenant can be defined differently from the one used to underwrite the loan.
The second is interest-only. The handbook says that even when a loan allows interest-only payments, the property should still meet the bank’s coverage requirement as if the loan were amortizing. Here is the arithmetic on a $3,500,000 loan at 6.75 percent against $412,000 of cash flow:
| Basis | Debt service for a year | Coverage |
|---|---|---|
| Amortized over 25 years | $290,183 | 1.42x |
| Interest only | $236,250 | 1.74x |
A bank will test the first line. The second flatters the deal.
SBA publishes its minimums, which is rare. For a standard 7(a) loan it is 1.15x on a historical or projected basis and 1.00x on a global basis. For a 7(a) Small loan that is not a change of ownership it is 1.10x. For a change of ownership it is 1.25x for an initial acquisition, an owner buyout, an ESOP or a cooperative, and 1.15x for a business expansion. For a 504 loan it is 1.15x on historical cash flow. The DSCR calculator prints the table with its source.
Debt yield
Debt yield is net operating income divided by the loan, as a percentage. The OCC handbook says it measures risk independently of the interest rate, the amortization and the cap rate, that lower debt yields mean higher leverage, and that it is a quick way to size up a loan. It adds that debt yields vary with market conditions and property type, and that it should be read alongside coverage and loan to value.
The independence is the point. If rates fall, coverage improves on the same loan and debt yield does not move. A lender that uses it is protecting against the loan size that only works at today’s rate. No federal rule sets a minimum, so the number is the lender’s own.
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Loan to value and loan to cost
The interagency guidelines tell each bank to set its own loan to value limits, not above these supervisory ones: raw land 65 percent, land development 75, construction of commercial, multifamily and other nonresidential property 80, one-to-four family construction 85, and improved property 85. The OCC handbook says these limits matter for reporting and supervision but are not a safe harbor, and that the right limit for a loan follows the same reasoning as amortization: steadier cash flow and value can support more leverage, and riskier property needs more equity.
Loan to cost matters when the borrower is building or renovating, because the value of an unfinished building is a forecast and the cost is a budget. The handbook says a bank’s policy should require the borrower’s equity before construction disbursements begin. The LTV and LTC calculator shows the equity a given loan leaves.
What borrowers actually file is in the record. In HMDA, the middle combined loan to value on 41,516 HMDA, multifamily loans made in 2025 was 65%, and it stayed in a narrow range across loan sizes.
| Loan size | Loans | Share | Middle rate | Middle LTV | Refinances |
|---|---|---|---|---|---|
| Under $1 million | 17,878 | 43% | 7.01% | 66% | 45% |
| $1 million to $2.5 million | 9,900 | 24% | 6.38% | 63% | 51% |
| $2.5 million to $5 million | 4,947 | 12% | 6.17% | 63% | 54% |
| $5 million to $10 million | 3,267 | 8% | 5.97% | 65% | 56% |
| $10 million to $25 million | 2,905 | 7% | 5.75% | 65% | 54% |
| $25 million and over | 2,619 | 6% | 5.45% | 64% | 53% |
HMDA, Five or more units, manufactured-home parks left out. Rate and LTV are as filed under HMDA; a loan that reported none is left out of that median.
Global cash flow and the guarantor
Global cash flow adds the cash flow of every business and person behind the loan and sets it against all of their debt service, not only this loan’s. The guarantor test asks whether the person who stands behind the loan has both the ability and the willingness to pay, and whether the guaranty can be enforced. Each has its own guide: global cash flow and guarantor strength and recourse.
Sizing: the smallest of the tests
A lender applies several tests at once and lends the smallest amount any of them allows. Take a property with $412,000 of cash flow and a $5,000,000 value, a 6.75 percent rate and a 25-year amortization, and three tests set by the lender: 1.25x coverage, 75 percent loan to value and a 9 percent debt yield.
| Test | The loan it allows | The arithmetic |
|---|---|---|
| Coverage at 1.25x | $3,975,425 | $412,000 divided by 1.25, divided by the loan constant of 0.082909 |
| Loan to value at 75% | $3,750,000 | $5,000,000 times 0.75 |
| Debt yield at 9% | $4,577,778 | $412,000 divided by 0.09 |
Loan to value binds, so the loan is $3,750,000. At that size coverage is 1.33x and the debt yield is 10.99 percent. More cash flow would not raise the loan. Only a higher value, more equity or a lender with a higher limit would. The numbers are an example, not any lender’s limits.
What is published and what is not
Published: the supervisory loan to value table, SBA’s coverage minimums and its 504 structure, and the OCC’s list of what a sound loan policy covers: minimum net worth, support from guarantees, borrower and guarantor cash flow and coverage, loan to value limits by property type, maximum tenor, minimum debt yield and amortization limits.
Not published: any one bank’s numbers. They are in its loan policy. Before you size a request, ask three questions: which cash flow does the lender use, which rate and amortization does it use to test coverage, and which value, as is or stabilized.
What the public record can and cannot tell you
Call reports show what a bank holds by kind of loan, not any loan’s coverage, yield or value. HMDA shows the amount, rate, term and combined loan to value of multifamily loans made. The SBA files show the amount, rate and term of SBA loans. None shows a coverage ratio or a debt yield, so use the public record to find lenders that make loans your size, and use the lender’s policy to learn its tests.
Terms used here
- Debt service coverage ratio (DSCR): Net operating income, or business cash flow, divided by the loan payments due in a year. It shows how many dollars come in for each dollar of debt service.
- Debt yield: Net operating income divided by the loan amount, shown as a percent. It measures how much income stands behind each dollar lent, whatever the rate or term.
- Loan-to-value ratio (LTV): The loan amount divided by the value of the property securing it. A $700,000 loan on a property valued at $1,000,000 is 70 percent loan to value.
- Loan-to-cost ratio (LTC): The loan amount divided by the total cost of a project: the property plus all construction costs. It shows how much of the budget the lender funds.
- Net operating income (NOI): A property's annual income minus its operating expenses, before loan payments, income taxes and depreciation. It is the top number in DSCR and debt yield.
- Global cash flow: The combined cash flow of a borrower, its owners and their other businesses, set against all of the debt payments those same parties owe.
- Guarantor: A person or company that promises to repay a loan if the borrower does not. On a loan to an LLC or corporation, the guarantor is usually an owner.
- Loan covenant: A promise in a loan agreement that the borrower will do certain things, or will not, for as long as the loan is outstanding, such as keeping a minimum debt service coverage ratio.
Sources
Every rule and outside figure above comes from one of these, opened on . Dates are the source's own. Figures from this site's data carry their own source and date beside them.
- OCC Comptroller's Handbook, Commercial Real Estate Lending, version 2.0 (pp. 21 to 22, 26 to 30, 39 to 44), published .
- 12 CFR part 365, Appendix A, Interagency Guidelines for Real Estate Lending Policies, current as of .
- SBA SOP 50 10 8.1, Lender and Development Company Loan Programs (Section B Chapters 1 and 2, Section C Chapter 1, Appendix 15), effective .
- CFPB and FFIEC HMDA public data, multifamily loans originated in 2025, as summarized on this site, pulled .
Next step: check the record
- Size the loan with the maximum loan calculatorType the limits you expect and see which test sets the loan.
- Run Loan Comps for the loan you getAdd the state and the kind of property to see which lenders have made loans near that size.
- Find small-balance commercial real estate lendersBanks where most of the commercial real estate book is in loans of $1 million or less.
Keep reading
- 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.
- Debt yield calculator: Cash flow over the loan. The one ratio that ignores the rate, the amortization and the cap rate.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- Maximum loan calculator: The loan each test allows: DSCR, LTV and debt yield side by side, and which one binds.
- Global cash flow, explained step by step: A property can cover its loan while the people behind it cannot cover their other debts. Global cash flow is the test that looks at all of it at once.
- Guarantor strength and recourse, explained: A guaranty is the lender's second way out. Whether you sign one, how much it covers and what the lender checks before accepting it shape a commercial loan as much as the rate does.
- What a lender-ready loan package looks like: A lender decides in minutes whether to keep reading. A package that answers the first five questions on one page, and backs each answer with a document, gets read.
- Supervisory loan to value limits and HVCRE, explained: Two federal rules shape how much a bank will lend against real estate: a table of loan to value ceilings, and a capital rule that makes some construction loans cost the bank more to hold.
- How to pick banks for a deal with public data: Public filings cannot tell you which bank will say yes. They can tell you which banks are large enough, already hold loans like yours and lend where the property is. That is enough to turn four thousand banks into six phone calls.
Questions people ask
What DSCR do banks require?
There is no federal number for a conventional bank loan. Each bank sets its own minimum in its loan policy, and it varies with the property, the amortization and how steady the cash flow is. SBA does publish its own: 1.15x for a standard 7(a) loan, 1.10x for a 7(a) Small loan, and 1.25x on most changes of ownership.
Is loan to value or debt service coverage the test that usually decides the loan?
Whichever gives the smaller loan. Coverage binds when rates are high or the amortization is short. Loan to value binds when cash flow is strong relative to price. The maximum loan calculator shows both side by side.
Cite this
Source: The Lender Report, How bankers evaluate a commercial loan deal, https://lender.report/guides/how-bankers-evaluate-a-deal/, data as of November 9, 2026.
General information, not legal, tax or credit advice. A lender's own policy decides what it will do; ask it for the policy in writing.
Source and date appear beside each figure. Banks report balances, not loans made. Loans made come only from HMDA and SBA files. We do not audit filings and can make errors joining them. Report a problem