All About Debts

In commercial real estate, finding money to fund your project or investment can be difficult if you do not know what lenders are looking for. Generally, lenders have strict guidelines which they use to determine if they are going to allow a person to borrow money.

Debt Help Commercial real estate loans generally involve a lot more money than residential. We are talking about hundreds of thousands to millions of dollars that are loaned out to purchase and develop properties. There is an increased risk associated with these large commercial loans. Commercial lenders are often more analytical and cautious when loaning out such large amounts of money.

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Counseling Debt The following ratios are what commercial lenders use in order to not only decide if they will fund a project, but how much they will fund as well.

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Consolidation Consumer Debt The first ratio is the debt coverage ratio or DCR. The DCR applies to the property itself and how much income it is producing compared to the debt service, or how much money is paid out towards the mortgage on a monthly basis. It is expressed by the net operating income divided by the total debt service.

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Debt Settlement The net operating income is the total income left over from the property after paying all the operating expenses. The debt service is determined by the mortgage terms, such as interest rate, length of the loan, and how often a payment is made. The higher the DCR, the more ability the property will have to cover the debt service. Many lenders require a DCR above 1.2 in order to consider it a relatively safe investment. Anything below that indicates that the property is either barely breaking even, or losing money. A lender does not want to loan money on a project that is not able to cover its debt service.

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Debt Free The second ratio is the loan-to-value ratio. This is expressed by the total loan balances (sum of all mortgages) divided by the market value. When you apply for a commercial loan, as you do for a residential loan, you must determine how much value of the property you are actually borrowing versus what will remain as equity. If you can acquire a loan-to-value ratio of 75%, then that is generally a good number. If you can get more than 75% of the value loaned to you, then consider that a bonus. Lender's rules and guidelines may differ greatly depending on how much they are willing to risk on the project.

Consolidation Debt Service The third ratio is the debt ratio. For smaller commercial projects commercial lenders may require that you submit personal information to back the loan. This includes your personal income and debt on a monthly basis. The debt ratio is expressed by dividing monthly housing expenses by gross monthly income.

Company Consolidation Debt The results show how much debt stands in relation to income. Many commercial lenders will not accept a debt ratio greater than 25%. However, some commercial lenders have been known to go up to 28% or even 36%. A debt ratio greater than 25% stands a good chance of having budget problems.

Consolidation Debt Online The lower debt ratio you have, the more likely you will be able to get funding for your smaller commercial project.

Consolidation Debt Free You can perform these ratios by simply projecting terms of a mortgage, assessing the current market value of the property, and comparing both current and future income and expense statements.

Debt Problem It is always a smart idea to get an idea of what a lender looks for so you can better match your project with a lender who will most likely fund your project. You can do this by calling different lenders and asking about loans that they are offering, such as any special rates or actual numbers of the ratios that they require in order to possibly approve a project. There are many options for lenders, so be sure to shop around and review each application carefully, as the information a lender can ask may differ from lender to lender.

Credit Debt And don't ever rule out the use of private lenders. They can lend you money even on the riskiest of deals, as the higher the risk, the bigger the return. No matter what commercial lender you approach, always be prepared with financial information and all supporting documentation.

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About The Author:

Card Credit Debt Eliminate Tony Seruga, Yolanda Seruga and Yolanda Bishop of http://www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.

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