Getting A Commercial Loan - Don't Fall For Lender's Tricks In The Credit Crunch

You know the old "Shell Game" ...where they put theagainst the lender's inevitable adjustments.
pea under one of three shells and you have to keepBy lowering the Net Operating Income, they may drop
your eye on the right one.you below the Debt Coverage Ratio that's required for
Let's talk a little about the Lender's shell games we arethat "80% LTV loan" you were counting on.
seeing a lot more of in the current cool financingThey can then legitimately come back and lower the
climate.loan amount.
These are tricks lenders are using very frequently inWhich means you have to come to the closing table
the last 6 months. Tricks that can radically lower thewith more money in hand ... sometimes a LOT more.
amount of money they'll approve you for on your nextIf you don't do something to change their thinking you
commercial purchase.only have one choice available ... bring more money to
Tricks you need to see coming from a long way offthe closing table.
and be prepared to defend against.The Lender's thinking has nothing to do with LTV.
The Loan To Value (LTV) Bait and SwitchThe negotiations will always center on your Net
Right now, the LTV Ratio may be the main numberOperating Income.
you use to estimate the amount of money you canSo rather than quietly give in to their little shell game of
get on a loan.moving targets, you have to be willing to vigorously
You may say to yourself something like this, "I have adefend your projections of Income and Expenses in
$2M purchase, and its a real bargain. The Lender saysorder to get the loan that you want. Be ready to build
80% LTV is no problem. I should be able to get ayour case like a lawyer.
$1.6M loan." Don't count on it and here's why ...- You may need to link arms with your Loan Broker
Once you are under contract and have presentedand go back to the Lender several different times with
your Lender Package to the Bank, the Loan to Valuemarket data to support your Income figures.
Ratio is absolutely and totally meaningless.- You may have to have link arms with your Property
The LTV gets trumped by another ratio that is muchManager and supply information to support your
more important to the bank.Expense data.
That's your Debt Coverage Ratio (DCR)AND remember, all this negotiation will come down in
Here's the basic formula:the last 10 days of the purchase process.
Debt Coverage Ratio = Net Operating Income /Be prepared to go down to the wire to get the
Annual Loan Paymentnumbers you need.
Debt Coverage Ratio for most lenders needs to be 1.2POWER TIP:
or higher. This means your Net Operating Income isMake sure your current purchase contract has several
equal to 120% of your loan payment.built in extensions of the financing period that you don't
Here's where they get you...have to pay an arm and a leg for. Check your current
1) The Lender will disagree on the amount of Incomecontract for a minimum of 90 days finance period with
you can project... and cut it.the ability to extend to 120 days - you will need every
2) They will disagree on the amount of Expenses thatone of them.
you will project ... and raise them.So when you're looking to buy your next property,
These two changes will take a great big bite out ofstart thinking like a banker.
your Net Operating Income.Don't count on Loan to Value Ratios.
And lenders have gotten MUCH more conservativeBe ready to defend your estimates of Income and
with their numbers on both sides of the ledger in theExpense so that your Net Operating Income will
current credit crunch. You will need to have evidencesupport a Debt Coverage Ratio that gives you the
to defend both your income and expense projectionsmoney you need.