American Loan Guide

Commercial Loan Company,Advance Cash Commercial Loan,Commercial Loan Financing,Commercial Building Loan Small Commercial Loan,California Commercial Loan,Texas Loan Commercial Rate,Commercial Loan Michigan

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

Commercial Loan

With collateral to offer Commercial loans can be taken out by any business or non-profit organization. Real estate is typically the collateral put up in order to secure a loan, so the more you have and the higher its value, the more you can borrow. There are a number of different potential sources for commercial loans, and you may want to be aware of all of them in order to make a knowledgeable decision about the institution to which you want to be indebted

Commercial banks remain one of the biggest lenders to the commercial sector. The process of applying for a loan from a commercial bank is straightforward and similar to applying for a personal loan. You can choose any common loan structure like fixed rate, adjustable, or balloon, and you will have to give the bank proof of your business's assets to obtain the loan.

Commercial Underwriting Guidelines
Every loan application is unique and evaluated on its own merits, but there are a few common criteria lenders look for in commercial loan packages.
Financial Analysis: - A key component in making an underwriting evaluation is the debt coverage ratio. The DCR is defined as the monthly debt compared to the net monthly income of the investment property in question. Make sure that you are familiar with a lender's DCR policy prior to spending money on an application. Ask them to give you a preliminary review of the investment property that you want to purchase. Information is free, mistakes are not.

Unlike residential lending, commercial investment properties are viewed more conservatively. Most lenders will require a minimum of 20% of the purchase price to be paid by the buyer. The remaining 80% can be in the form of a mortgage provided by either bank or mortgage company.

Commercial Lending Ratios
Most of real estate lending can be boiled down to the results of three ratios:
Loan-To-Value Ratio
Debt Ratio
Debt Service Coverage Ratio (DSCR)

The bulk of the energy spent "processing" a loan is merely an attempt to verify the numbers that go into the numerator and denominator of the above 3 ratios.
The Loan-To-Value Ratio (LTVR) is defined as follows:
Loan-To-Value= Total loan balances (1st mtg+2nd mtg+3rd mtg) / Fair market value (as determined by appraisal).
Loan-To-Value Ratios seldom exceed 80% because the lender always wants some extra protection against default.

The second ratio that lenders use when underwriting a loan is the Debt Ratio. The Debt Ratio compares the amount of bills that the borrower must pay each month to the amount of monthly income he earns. More precisely, the Debt Ratio is defined as:
Debt Ratio = Monthly Debt Obligations / Monthly Income
Obviously someone whose Debt Ratio is 150% is in trouble. A Debt Ratio of 150% would mean that a borrower's obligations are one and a half times his income. Debt Ratios seldom are allowed to exceed 40% in practice.

The final ratio used in lending is the Debt Service Coverage Ratio (DSCR). The Debt Service Coverage Ratio is a sophisticated ratio only used for large loans on income producing properties. It is defined as:
Debt Service Coverage Ratio = Net Operating Income / Debt Service
Net Operating Income is the income from a rental property after deducting for real estate taxes, fire insurance, repairs, and all other operating expenses; and Debt Service is the mortgage payment on the property.


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