What Lenders Look For
Before They Say Yes
Every lender has criteria. Understanding what they evaluate helps you prepare deals that get funded instead of deals that get passed.
The Basics That Must Be Right
These are table stakes. If any of these are off, the conversation ends before it starts.
Debt Service Coverage Ratio (DSCR)
Can the property pay its debt? Most lenders want 1.20x minimum, meaning NOI covers debt payments with 20% cushion. Stabilized assets often need 1.25x+.
Loan-to-Value (LTV)
How much skin does the sponsor have? Lower LTV means more equity cushion for the lender. Most conventional lenders cap at 65-75% LTV.
Net Operating Income (NOI)
Is the income real and sustainable? Lenders scrutinize T-12 operating statements, rent rolls, and expense ratios. Pro forma NOI gets discounted.
Property Condition
What is the physical state of the asset? Deferred maintenance, environmental issues, or structural problems can kill deals or require reserves.
How Lenders Evaluate Sponsors
Lenders bet on people as much as properties. Your track record, financial strength, and team matter.
Track Record
Have you done this before? Lenders want to see successful projects of similar size and type. First-time sponsors face higher scrutiny and may need experienced partners or co-sponsors.
Net Worth and Liquidity
Can you back the deal if things go wrong? Most lenders require net worth equal to loan amount and 10% of loan in post-close liquidity. Recourse requirements vary by deal risk.
Credit History
Any bankruptcies, foreclosures, or litigation? Background checks are standard. Issues do not always kill deals but must be disclosed upfront with explanation. Surprises kill trust.
Business Plan Clarity
What is your strategy and is it realistic? Stabilize and hold? Value-add and refi? Ground-up development? Lenders evaluate whether your plan matches the property, market, and your capabilities.
Common Deal Killers
These issues do not always mean no. But they mean significant friction, reserves, or rate adjustments.
Tenant Concentration
One tenant representing 25%+ of income creates risk. If they leave, can the property still service debt? Lenders want diversification or strong credit tenants.
Lease Rollover Risk
Too many leases expiring during the loan term? This creates uncertainty. Lenders prefer staggered expirations and long-term leases from quality tenants.
Environmental Flags
RECs in Phase I trigger Phase II. Contamination means cleanup costs, timeline delays, and possibly specialized lenders. Some issues are manageable; others kill deals.
Declining Market
Is the submarket losing population or jobs? Are rents flat or falling? Lenders track market fundamentals. Strong sponsor cannot overcome weak market.
How to Prepare Your Deal
The best way to get funded is to anticipate what lenders will ask and have answers ready.
Know Your Numbers Cold
DSCR, LTV, cap rate, NOI, rent per unit, occupancy. These should roll off your tongue. Inconsistencies between documents destroy credibility.
Acknowledge Risks Upfront
Lenders find issues. They always do. Better to surface them yourself with mitigants than have them discover problems and wonder what else you are hiding.
Complete Documentation
T-12, rent roll, sponsor financials, property photos, market data. Missing documents slow the process. Incomplete packages signal disorganization.
Tell a Clear Story
Why this deal? Why this market? Why you? A compelling narrative tied to solid numbers wins over spreadsheets alone.
See How Your Deal Measures Up
Upload your deal documents. Get an analysis highlighting the metrics lenders care about most. Know where you stand before you pitch.