Commercial loan sizer
Commercial lenders size a loan by computing the maximum amount allowed under four separate constraints — loan-to-value, DSCR, debt yield, and loan-to-cost — then taking the lowest of the four. Enter your property fundamentals and lender thresholds to see your recommended max loan and which constraint binds.
Binding constraint: Loan-to-Value (LTV)
The four constraints, explained
| Constraint | Formula | Typical threshold |
|---|---|---|
| LTV | Loan / property value | 65–75% |
| DSCR | NOI / annual debt service | 1.20x–1.25x |
| Debt yield | NOI / loan amount | 8%+ |
| LTC | Loan / total project cost | 80–85% |
Lenders take the minimum of all applicable constraint loans because each one caps a different risk — a deal that clears LTV comfortably can still be capped tightly by DSCR if rates are high or NOI is thin. Check your income-based ceiling with the DSCR calculator on its own.
Frequently asked questions
What are the four constraints lenders use to size a commercial loan?
Loan-to-value (LTV) caps the loan against appraised value; debt service coverage ratio (DSCR) caps it against the property's ability to cover payments; debt yield caps it as a rate-proof backstop (NOI divided by loan amount); loan-to-cost (LTC) caps it against total project cost on acquisitions or construction.
Why do lenders take the minimum of the four constraint loans?
Each constraint measures a different risk, and the lender's maximum exposure is set by whichever produces the smallest number. A loan can look fine on LTV but still fail DSCR if the property doesn't generate enough income to cover the payment — the binding constraint is whichever fails first.
What is debt yield and why do lenders use it?
Debt yield is NOI divided by the loan amount, expressed as a percentage. Unlike DSCR, it doesn't depend on interest rate or amortization, so lenders use it as a floor that protects them even if rates spike — a common minimum is 8%, meaning the loan can't exceed 12.5x NOI.
What is loan-to-cost (LTC) and when does it apply?
LTC caps the loan as a percentage of total project cost — acquisition price plus renovation or construction budget. It matters most for acquisition, value-add, and ground-up construction deals where cost, not just stabilized value, drives lender risk. A typical maximum is 80–85%.
How can I increase my maximum loan amount?
Identify the binding constraint first. If it's DSCR, extend amortization or document higher NOI. If it's LTV, a stronger appraisal or lower purchase price helps. If it's debt yield, there's less flexibility since it's rate-independent — the main lever is increasing NOI.
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