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Loan sizing

How big a loan will the lender give?

A lender checks the loan three ways and lends whichever answer is smallest. Drag each test's limit and watch which one holds the loan down.

The property
%
Property value$25.0M

These are stand-in numbers. Type your own NOI or cap rate and the page recalculates.

The loan the lender gives, and how it scores on each test
The loan$15.82Mset by debt service coverage
LTV at this loan63.3%under the 70% limit
Debt yield at this loan9.5%over the 9% floor
DSCR at this loan1.25xat the 1.25x floor
Every bar reaches the same $25.0M value. The loan line is what moves.
  • Value$25.0M
  • Equity$7.5M
  • Loan$17.5M
  • Value$25.0M
  • Equity$8.33M
  • Loan$16.67M
  • Value$25.0M
  • Equity$9.18M
  • Loan$15.82M

Swipe sideways to see all three bars.

The loan can be at most this share of what the building is worth.
70%
Loan by this test$17.5M
NOI divided by the loan has to clear this floor. A lower floor allows a bigger loan.
9%
Loan by this test$16.67M
NOI has to cover a year of loan payments with room to spare.
1.25x
6.50%
30 years
Loan by this test$15.82M
What just happened

The lender takes the smallest answer, so the loan is $15.82M and debt service coverage is the test that set it. Loan to value would have allowed $17.5M, and Debt yield would have allowed $16.67M, so neither of those is holding the loan down. To get a bigger loan the DSCR test has to loosen: a lower coverage floor, a lower rate, or a longer amortization.

Relevant formulas
Property value NOI divided by the cap rate$1.5M ÷ 6% = $25.0M
Loan by LTV value times the max LTV$25.0M × 70% = $17.5M
Loan by debt yield NOI divided by the min debt yield$1.5M ÷ 9% = $16.67M
Most the payments may take NOI divided by the min DSCR$1.5M ÷ 1.25x = $1.2M a year
What $1 a month carries at 6.50% over 30 years, 360 payments$158.21 of loan
Loan by DSCR the monthly payment times what $1 carries$100K a month × 158.21 = $15.82M
The loan the smallest of the three$17.5M, $16.67M, $15.82M = $15.82M, set by DSCR

Debt yield is NOI divided by the loan. DSCR is NOI divided by a year of payments on a loan that pays itself off over the amortization. Every lender sets its own limits; these are stand-ins.

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