How it works
Each test turns into a loan amount. Coverage gives the cash flow divided by the minimum coverage, divided by the loan constant, which is a year of payments on one dollar of loan at your rate and amortization. Loan to value gives the value times the limit. Debt yield gives the cash flow divided by the minimum yield. Loan to cost, if you add it, gives the cost times the limit. The loan is the smallest of them.
Which test is binding tells you what to change
- Coverage binds. A longer amortization, a lower rate or more cash flow raises the loan. A larger value does not.
- Loan to value binds. Only value, or a higher limit, raises the loan. More cash flow does not.
- Debt yield binds. Only more cash flow raises the loan. The rate and the value do not matter to it.
This is arithmetic, so it holds for any lender. The limits are the part that differs. A bank sets its own in its loan policy, SBA publishes its own, and the interagency guidelines tell each bank to set limits that do not exceed the supervisory loan to value table. The LTV and LTC calculator prints that table, and the DSCR calculator prints the minimums SBA publishes.
Using it before you call
Run it with the limits you think a lender uses, then with a stricter set. If the loan you want sits above the strict answer, you know the first question for the lender: what are your limits, and which cash flow and value do you use? Do not size a request on your own cash flow and the value you hope for.
In the data here
No public file holds a lender's limits. The lender page shows what a lender holds and what it has made, so you can find lenders whose loans reach your size. Use Loan Comps with the loan this tool gives you.
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.
- 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.
- 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 constant: One year of loan payments divided by the loan amount, shown as a percent. It folds the interest rate and the amortization period into a single number.
Sources
Next step: check the record
- Loan CompsEnter the loan this tool leaves you with and see which lenders have made loans at that size.
- ScreenerFilter banks and credit unions by size, state and the kinds of loans they hold.
Keep reading
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
- 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.
Estimate from your inputs. Not a quote or advice about which loan to take. Another tool: all calculators.