Commercial Financing Requirements

[Damon Wong]

So I started my search for financing a multi family property and was hit with this response: "You are asking for a 1.9 million dollar loan. You will need at least $380,000 (20%) to put down on the property + loan expenses and 9 to 10 months monthly payments. Your net worth will need to be at least 1.52 million dollars. Do you meet these requirements?" I get the 20% down (80% LTV), but not entirely the other two, is this standard? 9-10 months monthly payments I can understand (although not sure if 9-10 is high or not) because the bank wants to ensure you're covered for emergencies or to get off the ground---similar to some SFR financing requirements. But, why does my net worth need to be $1.52M. Does this change if/when I form my business entity for the purchase? I don't understand how they calculate the $1.52M. Also, there is no consideration for the property. I thought commercial loans focused on the property's income vs my personal status? If this property verified it generates $1M in annual income (it doesn't, but just an example) wouldn't that be enough? Just looking for some education on the underwriting requirements for multi family. Thanks.

[Brian Adams]

@Damon Wong most lenders require that you as the loan sponsor have multifamily experience and net worth equal to or exceeding the loan balance and 10% of the loan balance liquid post close. Generally this equates to about 12 months of debt service.

So the request by this lender is standard and sounds reasonable.