There are many steps in the commercial loan process. Initially, when a client comes to us with a loan request we do a preliminary underwriting to determine whether it is a viable deal. This underwriting consists of a conversation with the borrower to gather information about the parameters of their request. Questions such as what will be used for collateral, the value of that collateral, business income and history, what is the purpose/reason for the loan, and what the loan request is that they are looking for will be discussed. We will then take that preliminary information and calculate two different ratios. These ratios are the Loan-to-Value or Loan-to-Cost and the Debt Service Coverage Ratio.

Below you will find links to formulas that show you how C&T Funding and our Lenders calculate the ratios they use to determine value and loan amounts.

Loan-to-Value

My bank says they will only lend up to 80% LTV. What does this mean?

My bank says they will only lend up to 80% LTC. What does this mean?

Debt Service Coverage Ratio

Almost all loan programs require a Debt Service Ratio of 1.20. How do I know if my property meets these guidelines?

Direct Capitalization Rate

Different parts of the country have standard CAP Rates for property types. How do I calculate the CAP Rate for my property?

When you have a loan you want us to consider, please call 800-304-4537, email info@cntfunding.com, or Apply Now. We look forward to working with you.

Loan-to-Value

Loan-to-Value is defined as:

Loan-to-Value = Total loan balances (1st mtg + 2nd mtg + etc.)
Fair market value (as determined by appraisal)

EXAMPLE:

80% LTV = $500,000 (1st mtg) + $300,000 (2nd mtg)
                                               $1,000,000

Loan-to-Cost

Loan-to-Cost is defined as:

Loan-to-Cost = Property Value/Purchase Price + Soft Costs + Construction Costs
Requested Loan Amount

EXAMPLE:

80% LTC = $200,000 (property) + $50,000 (soft costs) + $750,000 (construction costs)

Debt Service Coverage

Debt Service Coverage (DCR) is defined as:

Debt Service Coverage = Net Operating Income (A)
  Mortgage Debt Service (B)

(A) The formula for calculating Net Operating Income is (all figures are on an annual basis):

Potential gross income =
            Scheduled rent income                                            $10,000
            Other income                                                             +$1,000
            Total potential gross income                                    $11,000
            Vacancy & collection loss (typically 15%)           - $1,650
            Potential gross income                                             $9,350
            Operating Expenses (avg. 38%-40%)                 - $4268
            Net Operating Income                                              $508

Direct Capitalization Rate

The Direct Capitalization Rate (CAP Rate) is used to determine an income approach value by using the cash flow of the property and is defined as follows:

            Value  =  Net Operating Income
                        Overall Capitalization Rate

EXAMPLE:
            $500,000 = $68,600 (Net Operating Income)
                                                .1372
            The CAP Rate in this example is 13.72% (.1372 x 100 = 13.72)

CAP Rates are typically different for different areas of the country. If you have an old appraisal the CAP rate can be found in it or by asking a commercial appraiser. Other ways to compute the CAP rate are:

            Net Operating Income =Overall Capitalization Rate X Value
                                                           -or-
            Overall Capitalization Rate = Net Operating Income
                                                                                Value