Commercial Business Loan Information  

Commercial Underwriting Guidelines - Click Here
Commercial Financing is underwritten on a case by case basis. Every loan application is unique and evaluated on its own merits, but there are a few common criteria that most Direct Commercial Loan Lenders, such as shialink.org, look for in a commercial loan package.

Commercial Lending Ratios - Click Here
Most of real estate lending can be boiled down to the results of three ratios, which are described in this article.

Commercial Loan to Value Ratios - Click Here
The loan-to-value (LTV) ratio is probably the most important of the 3 underwriting ratios.

Commercial Debt Ratios - Click Here
When analyzing the personal budget of a borrower, lenders use two different debt ratios to determine if the borrower can afford his obligations.

Commercial Debt Service Coverage Ratio (DSCR)- Click Here
The most important ratio to understand when making income property loans is the debt service coverage ratio.

The 5 C's of Commercial Credit

Commercial loan lenders are in business to make money. Consequently, when a commercial loan lender lends money it wants to ensure that it will be paid back. The commercial loan lender must consider the 5 "C's" of Credit each time it makes a loan.

Capacity to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships - personal and commercial - is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment.

Capital is the money you personally have invested in the business and is an indication of how much you will lose should the business fail. Prospective lenders and investors will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit any funding. If you have a significant personal investment in the business you are more likely to do everything in your power to make the business successful.

Collateral or guarantees are additional forms of security you can provide the lender. If the business cannot repay its loan, the bank wants to know there is a second source of repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Both business and personal assets can be sources of collateral for a loan. A guarantee, on the other hand, is just that - someone else signs a guarantee document promising to repay the loan if you can't. Some lenders may require such a guarantee in addition to collateral as security for a loan.

Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory? The lender will also consider the local economic climate and conditions both within your industry and in other industries that could affect your business.

Character is the personal impression you make on the potential lender or investor. The lender decide subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experience of your employees will also be considered.