There are numerous people who are confused with the requirements when applying for commercial loan. You have to know that for each application for such loan, it is independently evaluated with no 2 applications being similar. Commercial lenders will take a look at each individually and is going to judge them according to their merits. There are several common threads that they will evaluate in every application on the other hand. In the next paragraphs, you will be able to learn about the basic commercial loan underwriting guidelines which you must be aware of. Read more great facts on Commercial real estate financing, click here.
The LVT or the Loan To Ratio value of the loan is one of the most important criteria that commercial lender look at. They want to be certain that the LVT of a certain property meets their specific requirements. To give you an example, say that they are using an LVT of 80 percent, this means they are only giving you an 80 percent loan of the property's value. So, if the property is amounting to one million dollars, then they will just give you 800,000 dollars for the loan. It will be you who has to come up with the remaining 200,000 and don't forget the closing costs and due diligence as well. You can click this link http://plgcapitalllc.com for more great tips!
They will demand changes in case that your proposal doesn't fit to their LVT ratio. They are usually strict on LVT and because of that, you must meet their criteria or, you have to provide some sort of incentive like equity in the deal.
During your underwriting process for commercial loan, the lender is going to look at your financial projections and statements. They'll make sure that all of the figures make sense for proposed loan. They are going to look closely at DSCR or Debt Service Coverage Ratio or referred commonly as DCR, which is one thing you must know.
DCR deals with debt of property and the recurring mortgage payments than the income. They want to see that the income from property will be able to cover the mortgage payment every month plus margin remaining. Lenders also prefer commercial properties that are self sufficient and with that, their DSCR will reflect this need. Example, if they implement a DSCR ratio of 1:2, then it indicates that in every dollar of mortgage payment, you must be able to make 2 dollars revenue.
When applying for traditional commercial loans, the lenders usually like to see 3 years of successful business history. In the event that you do not have enough proof to present to them, then they will be evaluating your personal credit history and from there, determine whether you will get an approval or not. Please view this site http://www.wikihow.com/Modify-a-Commercial-Loan for further details.