Commercial lenders look at five things before they quote: the property's cash flow and how well it covers debt, the leverage against value or cost, the physical asset and its location, the sponsor behind the deal, and whether the business plan is credible. On top of that, every lender filters through its own lender box. A deal that fails the box is declined before anyone reads the numbers.
Here is how each factor is evaluated and what turns a request into a quick no.
1. Cash flow and coverage
Most commercial loans are sized on income. The lender rebuilds the property's net operating income (NOI) from the rent roll and T-12, then tests it against the proposed debt service.
What they check:
- DSCR: NOI divided by annual debt service. Stabilized deals commonly need 1.20x to 1.35x.
- Debt yield: NOI divided by loan amount. It ignores rate and amortization, so many lenders use it as a floor, commonly around 8% to 10% for permanent loans.
- Quality of income: in-place versus pro forma, lease terms, tenant credit, concessions, and how much rent comes from one tenant.
- Expense realism: management fee, reserves, insurance and taxes at post-closing levels, not the seller's figures.
Lenders underwrite their own NOI, and it is almost always lower than the sponsor's. Present a conservative, defensible figure and they spend less time cutting it. Test your coverage with the DSCR calculator and debt yield calculator.
2. Leverage
Leverage measures how much of the property's value or cost the loan represents.
| Metric | Formula | Commonly used for |
|---|---|---|
| LTV | Loan ÷ value | Acquisitions and refinances |
| LTC | Loan ÷ total project cost | Construction and value-add |
| Combined LTV | All debt ÷ value | Deals with mezzanine debt |
Maximum leverage varies widely: conservative bank and life company loans can sit at 55% to 65% LTV, while agency, CMBS and bridge programs may go higher. The lender's appraisal, not your value, sets the final number. Use the LTV calculator to check both LTV and LTC.
The final loan is the lowest amount allowed by coverage, leverage and debt yield together. See how to size a commercial real estate loan.
3. The property and its market
Asset: age, condition, deferred maintenance, unit mix or tenant mix, parking, functional obsolescence. Lenders order a property condition report and an environmental report before closing; flag known issues up front.
Location: submarket vacancy, rent growth, supply pipeline, employment drivers, and how the property's rents compare with comps. Lenders are suspicious of rents well above the comp set.
Asset class: each class carries its own concerns. Office lenders focus on lease rollover and tenant improvement costs. Hospitality lenders look at RevPAR and brand. Self-storage lenders look at occupancy trends and nearby supply. Multifamily lenders look at rent roll quality and expense ratios.
4. The sponsor
The sponsor is the person or company behind the borrower. Even on non-recourse loans, lenders care who they are dealing with.
Sponsor checklist:
- Experience: track record with the same asset class, size and business plan
- Net worth: commonly at least equal to the loan amount, though programs vary
- Liquidity: cash and marketable securities, commonly a percentage of the loan
- Credit and history: bankruptcies, foreclosures, litigation, prior lender relationships
- Real estate owned schedule: other properties, their debt and how they are performing
- Equity in the deal: how much cash the sponsor is putting in, and whether any is coming back at closing
A thin sponsor can sometimes be strengthened with a key principal, a guarantor, or a partner with the right track record.
5. The business plan
Lenders want to know what happens to the property after funding and why it works.
- Stabilized: hold and operate. Lenders want stable occupancy and a clean rent roll.
- Value-add: renovate, re-tenant or reposition. Lenders want a costed capex plan, a timeline, comps that support post-renovation rents, and a realistic exit, often a refinance into a permanent loan.
- Construction: build from the ground up. Lenders want a full budget with contingency, a fixed schedule, a strong general contractor, entitlements in place, and enough sponsor equity. See construction loans.
A business plan that relies on rent growth the market does not support is the most common reason value-add deals stall.
6. Fit with the lender's box
Every lender has a box: the loan sizes, asset classes, geographies, leverage, coverage and structures they will consider. This filter comes first.
| Box criterion | Example of a hard fail |
|---|---|
| Loan size | $3M request to a lender with a $10M minimum |
| Asset class | Hospitality to a lender that does not lend on hotels |
| Geography | A Texas deal to a lender active only in the Northeast |
| Leverage | 80% LTV to a lender capped at 65% |
| Structure | Construction to a permanent-only lender |
| Recourse | Non-recourse request to a recourse-only bank |
Hard fails end the conversation. Soft misses, like a DSCR slightly under target, usually lead to a counter at lower proceeds. Sorting the two before you send is the fastest way to raise your hit rate. More in how to find commercial real estate lenders.
How priorities shift by lender type
Every lender checks all of the above, but the weighting differs:
| Lender type | What they weigh most |
|---|---|
| Banks | Sponsor relationship, deposits, recourse, local market knowledge |
| Life insurance companies | Asset quality, low leverage, long-term tenant stability |
| CMBS | In-place cash flow, debt yield, standardized underwriting |
| Agency | Multifamily operations, rent roll quality, program eligibility |
| Debt funds and bridge lenders | Business plan, sponsor execution, exit to a permanent loan |
| Mezzanine providers | Combined leverage, senior loan terms, sponsor equity at risk |
A package that leads with the right evidence for the lender type gets read faster. For a bridge lender, open with the business plan and the exit. For a life company, open with the asset and its tenancy.
What happens after a lender likes the request
- Initial questions. Usually a call or email asking for clarifications or missing documents.
- Quote or soft term sheet. Indicative proceeds, rate, structure and key conditions.
- Signed term sheet and deposit. The borrower commits to one lender for diligence.
- Third-party reports. Appraisal, property condition, environmental, sometimes zoning and a survey.
- Underwriting and credit approval. The lender re-underwrites with its own reports. Proceeds can change if the appraisal or NOI comes in lower.
- Loan documents and closing.
Everything in the original package is tested again in steps 4 and 5. If the numbers were inflated, this is where the deal re-trades or dies. Conservative underwriting up front protects the closing.
Red flags that end a request
- Financials that do not tie: rent roll income far from T-12 income
- Pro forma income presented as current
- Missing or outdated rent roll
- Expenses well below comparable properties with no explanation
- Sponsor with no experience in the asset class and no experienced partner
- Major lease rollover in the first two years with no plan
- Cash-out refinance with no clear use of proceeds
- Inconsistent numbers between the memo, deck and email
How to present your request so it gets read
- Lead with the ask. Loan amount, purpose, property, leverage, coverage and term, in the first paragraph.
- Show your underwriting, not the seller's. One NOI, with the adjustments explained.
- Name the risks. List them with mitigants before the lender finds them.
- Keep the numbers identical everywhere. Memo, deck and email from one source.
- Make it skimmable. A credit officer should get the deal in two minutes.
Our loan request memo template gives a section-by-section outline, and how to package a commercial real estate loan covers the full process.
How Dori helps
Dori checks the box before anything goes out. It extracts the deal from your PDF, DOCX and XLSX files and scores it against more than 800 lender profiles: loan size, LTV, DSCR, asset class, geography and sponsor experience. Hard fails are surfaced separately, so you stop pitching lenders who were never going to fund it. The package, a branded PPTX and a DOCX memo, is built from the same record, so every lender sees the same numbers.