DSCR and Loan Covenant Question

[Jake Brown]

Hello, I am buying a 6 unit property. I recently received an LOI from a bank for a commercial loan which states that I have to have a global cash flow ratio of 1.25x and a subject property or borrowing entity cash flow ratio of 1.15x.

I am not worried about the global cash flow ratio as we make more than enough W2 income. However, I have a few questions about the 1.15x ratio:

1) What happens if I fall below this ratio? Will the bank recall the entire loan? Does this impact my credit score?

2) Do they even check the ratio if I can make the monthly payments? Our global cash flow will be close 3-4x of the debt service.

3) How do they track and verify expenses? And income? Can I just increase the borrowing entity cash flow by paying expenses directly or signing a lease with myself?

4) Does CapEx affect the 1.15x? For context, I think upon stabilization and rent increases my property ratio will be 1.2x. However, in year 1, it may be lower as we have to turn the units.

I have done several residential multifamily loans, but this is my first commercial multifamily loan so really appreciate your help. If anything else I should know about the risks I am taking, that'd be great.