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Commercial loan underwriting guidelines come down to cash flow ( DCR), loan to value (LTV), credit worthiness and property analysis. Although the process to evaluate a potential commercial mortgage is basically the same from one bank the next, their various appetite for both risk and minimum rates of return are what separates one bank from the next.

Underwriting Commercial Loan Cash Flow

Cash flow is paramount to underwriting commercial loans. Within the industry the cashflow analysis is refereed to as the Debt Coverage Ratio ( DCR). For both owner occupied and investment transactions underwriters normally want to see ratio’s above a 1.20. In other words, for every $1 of mortgage debt the property or business has to have $1.20 of net income to meet the mortgage payments.

Debt coverage ratio minimums vary from one lender to the next, property type and occupancy (investment or owner occ). “Riskier” property types such as hotels or car washes will be required to have higher cash flow levels, ie DCR at or above 1.3.

Credit Worthiness

The borrowers personal and business credit worthiness is also important and will be heavily scrutinized. Personal credit scores have become a bigger issues as the acceptance of the three bureau have become widespread. D & B’s as well as other measures are normally used to asses the creditworthiness of businesses that are involved.

Property Analysis Commercial Underwriting
Fair market rent and fair market value is heavily measured. Condition, age, appearance, town population, market trends as well as other more property type specifics are examined.

Commercial Underwriting – Loan to Value

Loan to value is simply the value of the subject property vs the loan amount. I.e if the property is worth $2,000,000 and the loan amount is $1,500,000 the LTV is 75%. This is a huge issue within commercial loan underwriting and a big separator between lending institutions. Some lenders will get very aggressive with this while other will be very conservative.

The property type has a major influence on loan to values that are offered on commercial loans. For example restaurant loans will normally be capped at 65% while more general purpose properties such as retail will be limited to 75%.

Commercial underwriters will give more leeway to buildings that are owner occupied vs. investment properties. Loan to value on purchase can go as high as 90% on owner occupants vs 75% on investments, for example.

Author: Jeff Rauth
Article Source: EzineArticles.com
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Up until recently restaurant financing, was burdensome and very limiting. Not only are there only a few lenders interested in restaurant financing, refinancing for this type of business is very difficult to obtain. If you are already in the restaurant business or are planning to open a restaurant, you really do have only a handful of lenders to choose from and even they remain overly cautious with very conservative guidelines.

Thankfully, in the past few years there have been a few more lenders decide to offer restaurant financing, and a few more options. For example, no you can look at stated income loans or loans that are amortized over 30 years. The main reason for the conservative lending patterns is that the restaurant industry has almost twice as many bankruptcies as any other industry. Plus this industry has a lot of seller financing which makes it riskier and more complicated for financial institutes.

When a restaurant loan is underwritten, it focuses more on the debt coverage ratios, loan to value ratios, your credit worthiness, and other more traditional requirements. The debt coverage ratio is the most important and is usually quite conservative around 1:1.3 meaning that for every $1.30 of net income the mortgage payment can’t be over $1.00.

Stated income loans are relatively new for restaurant financing, and they’ve come to be because of the cash nature of the restaurant business. It’s an excellent option for you if your net income isn’t enough for a traditional loan.

The restrictions on most loan to value ratios usually tops out at 60% except in some high leverage loans where it might be as high as 90%. All of these numbers really are dependent on both the lender and your personal situation. Restaurant financing is one type of lending that doesn’t have a cut and dry set of requirements. Your personal credit score will almost always come into play with restaurant financing, with a credit score of 640 being about the lowest credit score that lenders will look at.

Restaurant financing may be a little more difficult than other types of business financing, but you should never let that stand in your way. Online lenders are much more flexible than traditional lending institutes like the banks, so do your research, and explore all your options.

Above all, never give up on your dreams. If owning a restaurant is your dream, then keep at it until you find restaurant financing that works for you!

Author: Gordon Petten
Article Source: EzineArticles.com
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The global financial crisis has made it quite difficult for companies, especially small businesses, to get business loans. Ironically, it is also in this situation that smaller companies often need additional capital infusion to boost income. You may need to get small business loans to acquire a better business location, construct a new building, renovate your premises, pay for new equipment, fixtures or furniture or increase inventory and working capital.

Most Small Business Loans Require Collateral

To get business loans, even small business loans, is a major challenge.

First you need to identify which among the many types of small business loans you need. Small business loans ranging from $5,000.00 to $35,000.00 are called micro loans. For larger needs, such as for the acquisition of land, buildings and other major fixed assets, development financing is what you should find. There are also import export loans as well as franchise financing. Do your research to find out if you are qualified for small business loans guaranteed by the U.S. Small Business Administration or SBA.

Any of these small business loans will require extensive preparations and paperwork. As a small business owner, you will need to prove your credit worthiness through a personal credit history report. Lenders will also require a business plan which includes your credentials as the business owner, your company financial statements, business assets and an analysis of your market. All of these should be packaged in a professional loan proposal which presents how the loaned amount will be used to strengthen the business and how you intend to repay the loan. Most of all, you need to present your loan collateral – the assets you will put up to secure the loan.  

Quick and Easy Small Business Loans with No Collateral

For smaller acquisitions or day to day business needs, there is a way for entrepreneurs to get small business loans easily and quickly with no collateral. This is through merchant services.

Merchant services provide credit card services to businesses. This enables them to accept and process payments through credit cards or debit cards either through face to face purchases, online transactions, or even by phone or fax. Merchant service providers supply terminal equipment for card swiping, as well as the necessary software and high speed IP solutions.

Most businesses need credit card services since consumers routinely pay for goods and services through credit cards and debit cards these days. If your business has not taken this step yet, you may have been missing out on more than half of your income potential.

These same merchant services also provide the solution for your small business loans. Collateral-free loans can be availed of through their cash advances, with the loan amount computation based on the monthly credit card revenue your business generates. Credit card sales requirements may be as low as $3,000.00 a month. You will not be asked for collateral since your future revenue is your collateral.  

The best types of merchant cash advances do not require fixed monthly payments nor do they impose deadlines on loan payment. A certain percentage is instead deducted automatically from your credit card revenue each month to go towards loan payment. This way, you never have to worry about loan amortization.

Once your cash advance has been fully paid, you may apply for another one. It is like having a revolving credit line. Make sure that you compare the terms of several merchant service providers, though, and read the fine print on contracts. There are so many merchant service providers competing for your business that you’ll surely find one that fits your needs.