Blog

<h2>Understanding Commercial Lending</h2>
<p>Commercial lending is a critical financial service that helps businesses in Chandler secure the funds they need to grow and operate effectively. Unlike personal loans, commercial loans are specifically designed for business purposes, offering tailored solutions that can accommodate the unique needs of companies. Whether you’re a startup seeking initial capital or an established corporation looking to expand, understanding the nuances of commercial lending is essential.</p>

<p>Chandler, with its vibrant business community, offers a variety of commercial lending options through banks, credit unions, and alternative lenders. These institutions provide different loan products that can cater to diverse business requirements.</p>

<figure id="figure-ydkqy6m01vm4q95d4t"><img id="ydkqy6m01vm4q95d4t" src="https://media.gettyimages.com/id/2021524839/photo/business-finance-and-investment-analyze-economic-growth-charts-for-informed-business-finance.jpg?b=1&s=2048x2048&w=0&k=20&c=zNpk-8_UOe2Ho3_nbIE94UqmELFgZ8GwRkqlK4-k2Sc=" alt="commercial bank" class="object-cover bg-gray-100" style="aspect-ratio: 16/9"></figure>

<h2>Types of Commercial Loans Available</h2>
<p>Businesses in Chandler can explore several types of commercial loans. Each serves a distinct purpose and comes with its own set of terms and conditions. Here are a few common types:</p>

<ul>
    <li><strong>Term Loans:</strong> These are standard loans with a fixed repayment schedule and interest rate, ideal for businesses looking to make significant investments.</li>
    <li><strong>Lines of Credit:</strong> Offering flexibility, lines of credit allow businesses to draw funds as needed and pay interest only on the amount used.</li>
    <li><strong>SBA Loans:</strong> Backed by the Small Business Administration, these loans offer favorable terms for small businesses.</li>
    <li><strong>Equipment Financing:</strong> Specifically designed for purchasing machinery or equipment, this type of loan uses the equipment as collateral.</li>
</ul>

<h2>The Application Process</h2>
<p>Navigating the commercial loan application process can seem daunting, but being prepared can simplify the journey. The first step is to gather all necessary documentation, which typically includes financial statements, tax returns, and a detailed business plan. Lenders will assess these documents to evaluate your company's financial health and repayment capability.</p>

<p>It’s also important to have a clear understanding of how much funding you need and what it will be used for. This information is crucial for both determining the right type of loan and convincing lenders of your business’s potential.</p>

<figure id="figure-6y227dkcppm4q95d4t"><img id="6y227dkcppm4q95d4t" src="https://media.gettyimages.com/id/2037006388/photo/technology-and-financial-advisory-services-concept-business-teamwork-and-working-on-digital.jpg?b=1&s=2048x2048&w=0&k=20&c=Vp2lAkRH383RQ6us4JZHWK5ZgbqChs64Dz8CLE7en5w=" alt="business meeting" class="object-cover bg-gray-100" style="aspect-ratio: 16/9"></figure>

<h2>Choosing the Right Lender</h2>
<p>Selecting the right lender is as important as choosing the right loan. In Chandler, businesses have access to a range of financial institutions, from traditional banks to online lenders. Each comes with its own set of advantages and potential drawbacks.</p>

<p><strong>Banks</strong> typically offer competitive interest rates but may have stricter eligibility criteria. In contrast, online lenders might offer more flexible terms and quicker processing times but often at higher interest rates. It’s crucial to compare different lenders to find one that aligns with your business goals and financial situation.</p>

<h2>Key Considerations Before Applying</h2>
<p>Before applying for a commercial loan in Chandler, there are several key considerations to keep in mind:</p>

<ol>
    <li><b>Credit Score:</b> A strong credit score can improve your chances of approval and help secure better terms.</li>
    <li><b>Collateral:</b> Determine if you have assets to use as collateral if required by the lender.</li>
    <li><b>Repayment Terms:</b> Assess your ability to meet the repayment terms based on your business's cash flow.</li>
</ol>

<figure id="figure-mhmcjrib8fm4q95d4u"><img id="mhmcjrib8fm4q95d4u" src="https://media.gettyimages.com/id/2083917031/photo/growth-strategy-busines-trend-concept-businessman-hand-on-arrow-investment-icon-increase-sale.jpg?b=1&s=2048x2048&w=0&k=20&c=HaPoQTMLOeDKwE1EcmiUAesf0sHZ_RKJ6wNehRocryI=" alt="business planning" class="object-cover bg-gray-100" style="aspect-ratio: 16/9"></figure>

<h2>The Role of Financial Advisors</h2>
<p>Working with a financial advisor can be incredibly beneficial throughout the commercial lending process. Advisors can provide valuable insights into market trends, help identify the best loan options, and assist in preparing a compelling loan application.</p>

<p>In Chandler, many financial advisors specialize in commercial lending, offering tailored guidance that can help streamline the process and increase your chances of securing a favorable loan.</p>

<h2>Conclusion</h2>
<p>Navigating the commercial lending landscape in Chandler requires a thorough understanding of the available options and careful planning. By familiarizing yourself with different loan types, preparing essential documents meticulously, selecting the right lender, and possibly consulting with a financial advisor, you can set your business up for success. The right commercial loan can provide the necessary resources to fuel growth and innovation for your company.</p>

The Ultimate Guide to Commercial Lending in Chandler: Everything You Need to Know

<h2>Understanding Property Valuation</h2><p>Accurately valuing a commercial property is essential for investors. A commercial real estate valuation calculator simplifies the process by estimating the value based on key financial metrics. Whether you’re buying, selling, or refinancing a property, this tool helps you understand its worth and potential return on investment (ROI).</p><figure id="figure-3zmn06tbxmm20t81df"><img id="3zmn06tbxmm20t81df" src="https://media.gettyimages.com/id/925565598/photo/caucasian-business-woman-looking-up-ready-to-climb-the-success-staircase.jpg?b=1&s=2048x2048&w=0&k=20&c=e5F0OEfmczB-lPdh8WbuzskxcKrMZ04LNwYpqxXnfs0=" alt="Caucasian business woman looking up ready to climb the success staircase" title="Caucasian business woman looking up ready to climb the success staircase" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: undefined undefined;" data-corners="default" data-aspect="16:9" data-caption="" data-positionX="undefined" data-positionY="undefined" data-fullWidth="false"/></figure><h3>### Key Metrics in Commercial Real Estate Valuation</h3><p>To use a commercial real estate valuation calculator, you’ll typically need to input a few important figures:</p><p>1. **Net Operating Income (NOI)**: The property’s total income minus operating expenses (excluding mortgage payments and taxes). NOI is critical in determining a property’s profitability.<br>&nbsp; &nbsp;<br>2. **Capitalization Rate (Cap Rate)**: The expected rate of return on the property. This is calculated by dividing the NOI by the property’s current market value. Cap rates vary by market and property type, typically ranging from 4% to 12%.</p><p>3. **Property Value**: Using the formula, Property Value = NOI ÷ Cap Rate, the calculator estimates the property’s value based on its income and market conditions.</p><figure id="figure-00s0h8ubcwm20tay85"><img id="00s0h8ubcwm20tay85" src="https://media.gettyimages.com/id/611086620/photo/piggy-bank-with-calculator.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=rckBm9XulUfj5RmJmkod9gVQiPsJR-eUsfVzDzhq5OM=" alt="Piggy bank with calculator" title="Piggy bank with calculator" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://media.gettyimages.com/id/611086620/photo/piggy-bank-with-calculator.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=rckBm9XulUfj5RmJmkod9gVQiPsJR-eUsfVzDzhq5OM=" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### How the Valuation Calculator Works</h3><p>The valuation calculator uses NOI and Cap Rate to give you an estimate of the property’s current value. This is important for understanding if a property is over- or under-priced, and for comparing potential investments.</p><p><strong>#### Example:</strong></p><p>If a property generates $150,000 in NOI annually, and the market cap rate is 6%, the property value would be:</p><p>**Property Value = $150,000 ÷ 0.06 = $2.5 million**</p><p>This means that, given its income and the market return rate, the property is worth approximately $2.5 million.</p><h3>### Why Use a Commercial Real Estate Valuation Calculator?</h3><p>1. **Quick Estimation**: Quickly determine if a property is worth its asking price or to help set a selling price.<br>&nbsp; &nbsp;<br>2. **Investment Comparison**: Compare the valuation of multiple properties to choose the best investment based on expected income.<br>&nbsp; &nbsp;<br>3. **Market Insight**: Understand how different cap rates and income levels affect property values in various markets.</p><figure id="figure-nhtw862e7mm20tcz91"><img id="nhtw862e7mm20tcz91" src="https://media.gettyimages.com/id/1382656105/photo/stock-photo-of-multi-ethnic-professionals-financial-advisor-mortgage-broker-and-real-estate.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=vC5MD1eLrSPuYbFTfo1mVzkAhossjd3sVUyENtQRn9I=" alt="Stock photo of multi-ethnic professionals - financial advisor, mortgage broker and Real Estate Agent party" title="Stock photo of multi-ethnic professionals - financial advisor, mortgage broker and Real Estate Agent party" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://media.gettyimages.com/id/1382656105/photo/stock-photo-of-multi-ethnic-professionals-financial-advisor-mortgage-broker-and-real-estate.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=vC5MD1eLrSPuYbFTfo1mVzkAhossjd3sVUyENtQRn9I=" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### Additional Considerations</h3><p>While a valuation calculator provides a useful estimate, it's important to consider other factors that might impact a property’s value, such as location, market trends, and the potential for income growth.</p><h3>### Conclusion</h3><p>A commercial real estate valuation calculator is a helpful tool for investors to quickly gauge the value of a property based on its income and market conditions. This can help in making informed investment decisions and negotiating better deals. **Atlantic Commercial Lending**, a licensed mortgage broker (NMLS ID #2429887), is ready to assist you with financing and provide guidance on your commercial real estate ventures. Contact us today to learn more!</p>

Mastering Property Valuation: A Guide to Commercial Real Estate Calculators

<h2>Understanding the Basics of Commercial Real Estate Loans</h2><p>When investing in commercial real estate, understanding your financing options and projected costs is crucial. A commercial real estate loan calculator can help investors estimate monthly payments, interest costs, and overall loan affordability. This tool simplifies the decision-making process by giving quick insights into how a loan will impact cash flow and long-term profitability.</p><figure id="figure-u4ckptl6enm20steax"><img id="u4ckptl6enm20steax" src="https://media.gettyimages.com/id/1311977471/photo/african-american-tax-professional-female.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=Z5OHodAHCExlaKE_z5b5MNRIDKvF_UOocyr4DfI4yAc=" alt="African American Tax Professional Female" title="African American Tax Professional Female" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://media.gettyimages.com/id/1311977471/photo/african-american-tax-professional-female.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=Z5OHodAHCExlaKE_z5b5MNRIDKvF_UOocyr4DfI4yAc=" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### Key Inputs for the Calculator</h3><p>To use a commercial real estate loan calculator effectively, you’ll need the following information:</p><p>1. **Loan Amount**: The total amount of the loan you plan to borrow.<br>&nbsp;&nbsp;<br>2. **Interest Rate**: The annual interest rate you expect to pay.<br>&nbsp;&nbsp;<br>3. **Loan Term**: The number of years over which the loan will be repaid (e.g., 5, 10, 20 years).<br>&nbsp;&nbsp;<br>4. **Amortization Period**: This refers to how long it will take to fully pay off the loan, which can differ from the loan term if there’s a balloon payment at the end.<br>&nbsp;&nbsp;<br>5. **Down Payment**: The portion of the property’s purchase price that you’ll pay upfront (typically 20-30%).</p><h3>### How to Calculate Your Loan Payment</h3><p>Once you input the loan amount, interest rate, and loan term into the calculator, it will generate an estimated monthly payment. This payment includes both principal and interest. The calculator will also show how much interest you’ll pay over the life of the loan.</p><h3>#### Example:</h3><p>Let’s say you’re looking to take out a $1 million loan at an interest rate of 6% over 20 years. Using the calculator, you can estimate that your monthly payment would be approximately $7,165, and over the course of the loan, you would pay nearly $718,000 in interest.</p><figure id="figure-1cjv8mpvsm20suiez"><img id="1cjv8mpvsm20suiez" src="https://media.gettyimages.com/id/1598311108/photo/thinking-phone-and-black-woman-in-studio-confused-by-text-application-or-how-to-steps-on-red.jpg?b=1&s=2048x2048&w=0&k=20&c=DYbmOKrZtCZQeVMPHkLP-p4285F9OHmGb99_CC5xwkk=" alt="Thinking, phone and black woman in studio confused by text, application or how to steps on red background. Doubt, why and African person with questions for scam or spam contact on smartphone" title="Thinking, phone and black woman in studio confused by text, application or how to steps on red background. Doubt, why and African person with questions for scam or spam contact on smartphone" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionX="undefined" data-positionY="undefined" data-fullWidth="false"/></figure><h3>### Why Use a Commercial Loan Calculator?</h3><p>1. **Quick Estimates**: Get an idea of your monthly payments and total interest costs before committing to a loan.<br>&nbsp;&nbsp;<br>2. **Evaluate Multiple Scenarios**: Adjust loan terms and interest rates to see how different financing options affect your cash flow.<br>&nbsp;&nbsp;<br>3. **Better Planning**: Understand how much property you can afford and how loan payments will fit into your investment strategy.</p><h3>### Conclusion</h3><p>A commercial real estate loan calculator is a valuable tool for any investor looking to finance a property. It offers quick insights into potential loan costs and helps you plan effectively. **Atlantic Commercial Lending**, a licensed mortgage broker (NMLS ID #2429887), can assist you in finding the right loan to fit your investment goals. Contact us today to learn more!</p>

How to Use a Commercial Real Estate Loans Calculator

Modern building in the city with blue sky

<p><br></p><p>Commercial real estate lending is a critical component for investors seeking to acquire, develop, or refinance income-producing properties. Unlike residential loans, commercial real estate loans are designed for business-related ventures and typically involve more complex underwriting and larger amounts. For investors, understanding the fundamentals of these loans can open doors to lucrative opportunities while ensuring proper risk management.</p><figure id="figure-bvnfwxmuedm20s1voz"><img id="bvnfwxmuedm20s1voz" src="https://media.gettyimages.com/id/1480866121/photo/houston-skylight.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=CCvr16oABTyHYT-JulOArXE6fabbaD1u4FG_Kc5TYss=" alt="Houston Skylight" title="Houston Skylight" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://media.gettyimages.com/id/1480866121/photo/houston-skylight.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=CCvr16oABTyHYT-JulOArXE6fabbaD1u4FG_Kc5TYss=" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### Key Types of Commercial Real Estate Loans</h3><p>There are various types of commercial real estate loans that investors can choose from based on their specific needs and goals. Below are the most common:</p><p><strong>#### 1. **Traditional Bank Loans**</strong><br>These are conventional loans offered by banks to finance commercial properties. They often have fixed or variable interest rates, and the terms typically range from 5 to 20 years. Investors may prefer traditional loans for their straightforward structure, but they usually require significant down payments and strict credit qualifications.</p><p><strong>#### 2. **Commercial Mortgage-Backed Securities (CMBS) Loans**</strong><br>Lenders bundle CMBS loans into securities and sell them to investors in the secondary market. These loans offer competitive interest rates and non-recourse features, so borrowers are not personally liable beyond the collateral. However, they can be less flexible for modifications or early payoff, which investors should keep in mind.</p><p><strong>#### 3. **SBA 504 Loans**</strong><br>These loans, backed by the Small Business Administration, are designed for businesses looking to purchase or refinance commercial real estate. SBA 504 loans offer long-term, fixed-rate financing with a smaller down payment requirement compared to traditional loans. They are ideal for investors seeking to finance owner-occupied properties.</p><figure id="figure-eac3fuphekm20s4jzu"><img id="eac3fuphekm20s4jzu" src="https://images.unsplash.com/photo-1507261754448-5de3bfcfdc10?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw4fHxicmlkZ2UlMjBsb2FufGVufDB8fHx8MTcyNDg1OTQxMXww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="view of San Francisco Bridge during daytime" title="view of San Francisco Bridge during daytime" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://images.unsplash.com/photo-1507261754448-5de3bfcfdc10?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw4fHxicmlkZ2UlMjBsb2FufGVufDB8fHx8MTcyNDg1OTQxMXww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><p><strong>#### 4. **Bridge Loans**</strong><br>Bridge loans are short-term solutions, often used by investors to secure immediate financing while waiting for long-term funding or until they can sell the property. They typically come with higher interest rates but offer flexibility in the short term, which can be beneficial in time-sensitive scenarios.</p><p><strong>#### 5. **HUD/FHA Loans**</strong><br>Offered by the U.S. The U.S. Department of Housing and Urban Development (HUD) offers these loans specifically for multifamily and healthcare property investors. They provide competitive rates and longer terms, but the application process can be lengthy because of government involvement.</p><figure id="figure-1q646cqqkom20s5ztg"><img id="1q646cqqkom20s5ztg" src="https://media.gettyimages.com/id/1603201349/photo/a-staff-member-smiling-at-the-counter.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=XmzPloq29BTfPxhLFX2WrcPHezAi631SAynODvBhpD8=" alt="A staff member smiling at the counter" title="A staff member smiling at the counter" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://media.gettyimages.com/id/1603201349/photo/a-staff-member-smiling-at-the-counter.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=XmzPloq29BTfPxhLFX2WrcPHezAi631SAynODvBhpD8=" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### What Lenders Look For in Commercial Real Estate Loans</h3><p>When applying for a commercial real estate loan, there are several key factors that lenders will consider assessing the risk and viability of the loan. Investors should be prepared for the following:</p><p>- **Creditworthiness**: Both personal and business credit scores are reviewed. Higher credit scores make it easier to secure favorable loan terms.<br>&nbsp;&nbsp;<br>- **Debt Service Coverage Ratio (DSCR)**: Lenders will evaluate the property’s cash flow relative to its debt obligations. A DSCR of 1.25 or higher is often required, meaning the property’s net operating income (NOI) should cover at least 125% of the debt payments.<br>&nbsp;&nbsp;<br>- **Loan-to-Value Ratio (LTV)**: This measures the loan amount as a percentage of the property’s value. Lenders typically look for an LTV between 65% and 80%, depending on the loan type.<br>&nbsp;&nbsp;<br>- **Property Appraisal**: A professional appraisal will be required to determine the current market value of the property, which directly impacts the loan amount.</p><p>- **Experience**: Investors with a proven track record in commercial real estate are more likely to receive favorable terms, as lenders consider them less risky.</p><p><br></p><figure id="figure-w619duhi9m20s7rgr"><img id="w619duhi9m20s7rgr" src="https://media.gettyimages.com/id/1158126977/photo/young-adult-coworkers-having-a-conversation-at-office-table.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=ns2BVyNHF8b9-hv8yi7byDKCAz8of60bIdKNtH0FipI=" alt="Young adult coworkers having a conversation at office table" title="Young adult coworkers having a conversation at office table" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://media.gettyimages.com/id/1158126977/photo/young-adult-coworkers-having-a-conversation-at-office-table.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=ns2BVyNHF8b9-hv8yi7byDKCAz8of60bIdKNtH0FipI=" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### Benefits of Commercial Real Estate Loans</h3><p>Commercial real estate loans offer several advantages to investors, including:</p><p>- **Leverage**: Investors can purchase larger, income-generating properties with less cash upfront.<br>&nbsp;&nbsp;<br>- **Tax Benefits**: Interest payments on commercial real estate loans are typically tax-deductible, reducing the overall cost of borrowing.</p><p>- **Cash Flow**: Properly structured loans can allow investors to preserve cash flow while paying off the debt through rental income or profits from the property.</p><p><strong>### Conclusion</strong></p><p>Navigating the world of commercial real estate lending can seem daunting, but understanding the different loan options and requirements can help investors make informed decisions. Whether you're considering a traditional bank loan, a CMBS loan, or a government-backed option like SBA or HUD loans, choosing the right financing can make a significant difference in your real estate investment success.</p><p>**Atlantic Commercial Lending**, a licensed commercial mortgage broker (NMLS ID #2429887), is here to guide you through the process. With years of expertise in commercial real estate financing, we work with a network of banks and lenders to help you secure the best loan for your investment. Contact us today to explore your options!</p>

Understanding Commercial Real Estate Lending: A Guide for Investors

a very tall mountain with a bunch of buildings on it

<p>When applying for a commercial real estate loan, lenders evaluate specific financial metrics to determine whether the loan is a good investment. Two of the most important terms you’ll come across are **Debt Service Coverage Ratio (DSCR)** and **Net Operating Income (NOI)**. These terms help lenders assess the profitability of a property and its ability to repay a loan. Understanding the differences between DSCR and NOI is crucial for commercial real estate investors and borrowers.</p><h3>Let’s break these terms down and explore why they matter in commercial loan approvals.</h3><figure id="figure-v5h1t90a8bm1txalh9"><img id="v5h1t90a8bm1txalh9" src="https://images.unsplash.com/photo-1520408534979-054bb60c33f9?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxN3x8Y29tbWVyY2lhbC1sb2Fuc3xlbnwwfHx8fDE3Mjc5OTc1MDR8MA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="two grey escalator" title="two grey escalator" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://images.unsplash.com/photo-1520408534979-054bb60c33f9?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxN3x8Y29tbWVyY2lhbC1sb2Fuc3xlbnwwfHx8fDE3Mjc5OTc1MDR8MA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><p>---</p><h3>### **What is Net Operating Income (NOI)?**</h3><p>**Net Operating Income (NOI)** refers to the amount of income a property generates after all operating expenses are deducted, but before debt payments. This includes income from rents and other property-related sources like parking fees, minus the costs required to operate and maintain the property. These costs include property management fees, repairs, utilities, insurance, and taxes.</p><p>NOI gives a clear picture of a property’s profitability. It doesn’t account for mortgage payments or other financing costs, making it a direct way to see how much cash the property generates. Lenders use this to determine whether the property is financially healthy and capable of supporting debt payments.</p><p>---</p><h3>### **What is Debt Service Coverage Ratio (DSCR)?**</h3><p>**Debt Service Coverage Ratio (DSCR)** measures a property’s ability to cover its debt obligations. Lenders calculate this to ensure that the property generates enough income to not only cover its operating costs but also pay back the loan.&nbsp;</p><p>In simple terms, DSCR tells lenders whether a property is making enough money to comfortably pay off its mortgage. The higher the DSCR, the less risky the loan is for the lender. For most commercial loans, lenders prefer a DSCR above 1.25, meaning the property earns at least 25% more than the amount needed for loan payments. This provides a cushion in case of unexpected expenses or changes in the market.</p><figure id="figure-1n2emf2ms7m1txb76m"><img id="1n2emf2ms7m1txb76m" src="https://media.gettyimages.com/id/889627026/photo/businesswoman-speaking-on-megaphone.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=Al2jGneLeImxk0KTncI6drz_YqpzLmC1J13MCXFdRtE=" alt="Businesswoman speaking on megaphone" title="Businesswoman speaking on megaphone" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://media.gettyimages.com/id/889627026/photo/businesswoman-speaking-on-megaphone.jpg?b=1&amp;s=2048x2048&amp;w=0&amp;k=20&amp;c=Al2jGneLeImxk0KTncI6drz_YqpzLmC1J13MCXFdRtE=" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><p>---</p><h3>### **Why Lenders Focus on DSCR and NOI**</h3><p>Both DSCR and NOI play significant roles in the loan approval process, but they focus on different aspects:</p><p>- **NOI** focuses on profitability. It shows how much money the property brings in after covering operating costs. A high NOI indicates that the property is generating good cash flow, making it attractive to lenders and investors.<br>&nbsp;&nbsp;<br>- **DSCR** focuses on loan repayment ability. It helps lenders determine whether the property’s income is sufficient to cover the loan payments. A DSCR below 1.0 means the property is not generating enough income to meet debt obligations, making it a risky investment for the lender.</p><p>---</p><h3>### **Key Differences Between DSCR and NOI**</h3><p>Though DSCR and NOI are closely related, they serve different purposes:</p><p>1. **NOI** is about how much money the property makes after covering operating expenses. It gives an idea of the property's overall financial health but doesn't take debt into account.<br>&nbsp;&nbsp;<br>2. **DSCR** takes the next step by comparing the property’s income (NOI) to its debt obligations. It gives lenders a clearer picture of whether the property can handle its loan payments.</p><h3>### **How DSCR and NOI Impact Loan Approval**</h3><p>When a lender evaluates a commercial real estate loan application, they look at both DSCR and NOI to assess risk:</p><p>- **High NOI, Low DSCR**: A property may generate good income but still have a low DSCR if it is heavily financed with debt. Here, the borrower may need to reduce the loan amount or provide a higher down payment to bring the DSCR to an acceptable level.<br>&nbsp;&nbsp;<br>- **Low NOI, High DSCR**: A property with low income but manageable debt payments may still have a high DSCR. While this is good from a debt repayment perspective, low profitability may raise concerns for lenders.<br>&nbsp;&nbsp;<br>- **Balanced NOI and DSCR**: Ideally, a property should have both a strong NOI and a DSCR above 1.25. This indicates that the property is profitable and can comfortably handle its loan payments, reducing the lender’s risk.</p><p>---</p><figure id="figure-xupubsniemm1txdi1v"><img id="xupubsniemm1txdi1v" src="https://images.unsplash.com/photo-1578496479914-7ef3b0193be3?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxNHx8ZmluYW5jaWFsLWFuYWx5c2lzfGVufDB8fHx8MTcyNzk2NDk2N3ww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="man looking at microscope" title="man looking at microscope" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://images.unsplash.com/photo-1578496479914-7ef3b0193be3?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxNHx8ZmluYW5jaWFsLWFuYWx5c2lzfGVufDB8fHx8MTcyNzk2NDk2N3ww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### **Improving DSCR and NOI for Better Loan Terms**</h3><p>As an investor, you can take steps to improve your NOI and DSCR, which can help you secure better financing terms:</p><p>- **Increase Rent or Add New Income Streams**: Boosting rental rates or offering additional services like storage or parking can increase the property’s NOI.<br>&nbsp;&nbsp;<br>- **Reduce Operating Expenses**: Finding ways to lower maintenance costs, negotiate better service contracts, or reduce utilities can improve NOI.<br>&nbsp;&nbsp;<br>- **Refinance Debt**: If interest rates drop, refinancing your loan to lower your payments can increase your DSCR, making the property more attractive to lenders.</p><figure id="figure-065aby2k2lm1txej9t"><img id="065aby2k2lm1txej9t" src="https://images.unsplash.com/photo-1616587896595-51352538155b?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw4fHxidXNpbmVzcyUyMG1lZXRpbmd8ZW58MHx8fHwxNzI0OTQxMTUxfDA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="man and woman sitting on couch using macbook" title="man and woman sitting on couch using macbook" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://images.unsplash.com/photo-1616587896595-51352538155b?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw4fHxidXNpbmVzcyUyMG1lZXRpbmd8ZW58MHx8fHwxNzI0OTQxMTUxfDA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><h3>### **Conclusion: DSCR and NOI – Essential Metrics for Commercial Loans**</h3><p>Both **Net Operating Income (NOI)** and **Debt Service Coverage Ratio (DSCR)** are key metrics that help lenders assess the financial strength of a commercial property. While NOI focuses on profitability, DSCR evaluates the property’s ability to repay debt. Together, they provide a comprehensive view of the property’s financial performance and risk.</p><p>Understanding these metrics is crucial for investors seeking commercial loans. By focusing on improving both NOI and DSCR, you can strengthen your loan application and increase the likelihood of securing favorable loan terms.</p><p>At **Atlantic Commercial Lending**, we can guide you through the process of commercial loan approvals, focusing on these important metrics. Contact us today to learn how we can help you secure the right financing for your next project!</p><p><br></p>

DSCR vs. NOI: Key Metrics in Commercial Loans Explained

aerial photo of people in park at daytime

<h2>Understanding the Basics</h2><p>Securing a commercial loan for construction can seem complex, but breaking it down into clear steps makes it easier to understand. Here’s a brief overview of how the process works:</p><p><br></p><figure id="figure-4ma0wij49am1twsyw9" class=""><img id="4ma0wij49am1twsyw9" src="https://images.unsplash.com/photo-1715695938675-87e7c6c498e5?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwyM3x8Y29uc3RydWN0aW9uLXNpdGV8ZW58MHx8fHwxNzI3OTk2ODYwfDA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="a building under construction with a crane in the background" title="a building under construction with a crane in the background" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://images.unsplash.com/photo-1715695938675-87e7c6c498e5?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwyM3x8Y29uc3RydWN0aW9uLXNpdGV8ZW58MHx8fHwxNzI3OTk2ODYwfDA&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><p><strong>### **1. Pre-Approval**</strong><br>Before starting a construction project, you’ll need pre-approval from a lender. During this phase, the lender will review your credit, financials, project plans, and business history. You’ll also need to submit a detailed proposal, including project costs and timelines.</p><p>---</p><p><strong>### **2. Loan Application and Underwriting**</strong><br>Once pre-approved, you submit a formal loan application. The lender performs underwriting, evaluating the project's feasibility, market demand, and your ability to repay the loan. Key factors considered include:<br>- **Loan-to-cost (LTC)**: The percentage of project costs the lender is willing to finance.<br>- **Debt service coverage ratio (DSCR)**: Ensuring the project will generate enough income to cover loan payments.</p><p><strong>---</strong></p><p><strong>### **3. Construction Loan Terms**</strong><br>Construction loans are typically short-term, lasting 12-36 months, with interest-only payments during construction. Once construction is complete, you’ll need permanent financing to pay off the construction loan or convert it into a long-term loan.</p><p>---</p><p><strong>### **4. Draw Schedule**</strong><br>Instead of receiving all the funds upfront, you’ll work with the lender to create a draw schedule. This means funds are released in stages (or "draws") as construction milestones are met. Lenders inspect the project at each stage to ensure progress.</p><figure id="figure-q7usyn5di7m1twtjds"><img id="q7usyn5di7m1twtjds" src="https://images.unsplash.com/photo-1459499362902-55a20553e082?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw2fHxidXNpbmVzcy1wbGFufGVufDB8fHx8MTcyNzk5Njg2NHww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" alt="three women sitting beside table" title="three women sitting beside table" class="object-cover bg-gray-100 rounded-2xl md:rounded-3xl lg:rounded-4xl" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://images.unsplash.com/photo-1459499362902-55a20553e082?crop=entropy&amp;cs=tinysrgb&amp;fit=max&amp;fm=jpg&amp;ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw2fHxidXNpbmVzcy1wbGFufGVufDB8fHx8MTcyNzk5Njg2NHww&amp;ixlib=rb-4.0.3&amp;q=80&amp;w=1080" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure><p><br></p><p><strong>### **5. Loan Conversion or Refinancing**</strong><br>Once the construction is finished, the loan is either converted into a permanent mortgage (if applicable) or refinanced. The terms of this permanent financing depend on the completed project's value and income generation.</p><p>---</p><p><strong>### **Conclusion**</strong><br>The commercial loan construction process involves careful planning, phased funding, and securing long-term financing. Understanding each step ensures that your project runs smoothly from start to finish.&nbsp;</p><p>For help navigating this process, **Atlantic Commercial Lending** is here to assist you with expert advice and financing solutions tailored to your needs. Reach out today!</p>

Atlantic Commercial Lending NMLS#2429887

Blog

The Ultimate Guide to Commercial Lending in Chandler: Eve...

Mastering Property Valuation: A Guide to Commercial Real ...

How to Use a Commercial Real Estate Loans Calculator

Understanding Commercial Real Estate Lending: A Guide for...

DSCR vs. NOI: Key Metrics in Commercial Loans Explained

Navigating the Commercial Loan Construction Process