Standards Applicable to 90% of Lenders:

Although the parameters which lenders work within vary from institution to institution, depending on the project and its location, there are set standards that are acceptable to ninety percent (90%) of the lenders.

These standards include: LOAN TO VALUE (LTV), THE DEBT COVER RATIO (which shows there is a positive cash flow to cover the debt after all expenses plus a .20 profit), and THE BORROWERS NETWORTH. These three factors will determine if a request is worthy of further consideration. These ratios and facts are taken from the MAI Appraisal, the P&L Statements, and the financial statements of the borrower(s).

LTV is derived from the final appraisal figure from the appraisal.

Most lenders prefer an LTV that is no greater than seventy percent (70%) of the projects appraised value. The exception to this is luxury apartrnent complexes, or major projects that are leased. In some instances, if the debt coverage ratio is sufficient, a lender may fund as high as ninety percent (90%) of the projects appraised value. Keep in mind that a 90% LTV will be much harder to place than one of 75% or 70%.
Therefore, if possible, when it comes to major projects, try to maintain a maximum LTV of 75%, preferably 70%.

The DEBT COVERAGE RATIO generally accepted by all institutions is 1.20, with 1.10 being the minimum ratio acceptable. It is best to keep this ratio at a minimum of 1.20 or you will find the majority of your requests being declined.

The NETWORTH should be no less than fifty percent of the amount you are seeking if the project is one that is leased or pre-leased if funds are sought for new construction. If a project cannot be leased, is seasonal, or of higher risk due to the nature of the business, the net worth should be equal to or greater than the amount being sought.

If you have these three major factors above within the parameters discussed your chances of having your project(s) funded are very high.

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