Local Credit Union Gives Underwriting Ratios For Commercial Credit Lines

I had lunch a few weeks back with some folks at a local credit union that have $40M to lend.  We are seeking to improve the terms of our lines of credit and grow our borrowing capacity over time.  Following are the items the lender sent to me that they use to underwrite lines with:

 

People

Estimated Debt Service = Yearly Housing Expenses + Yearly Recurring Debt Payments

Debt Service Coverage Ratio = Net Personal Income Before Debt Service / Estimated Personal Debt Service

Debt To Income Ratio = Estimated Personal Debt Service / Net Personal Income Before Debt Service

Debt To Equity Ratio = Total Personal Liabilities / Total Personal Net Worth

Businesses

Estimated Debt Service = Current Portion of Long Term Debt (prior period) + Interest Paid (current period)

Debt Service Coverage Ratio = EBITDA / Estimated Debt Service

Interest Coverage Ratio = EBITDA / Interest Expense

Debt To Equity Ratio = Real Estate Total Liabilities / Real Estate Total Equity

Real Estate

Estimated Debt Service = Yearly Loan Payments

Debt Service Coverage Ratio = Real Estate Cash Flow Before Financing / Estimated Real Estate Debt Service

Total Equity = Total Value of Real Estate – Real Estate Total Liabilities

Debt To Equity Ratio = Real Estate Total Liabilities / Real Estate Total Equity

Global

Global Total Income = Combined Total Income + Double Counting Adjustments

Global Total Debt Service = Combined Total Debt Service + Double Counting Adjustments

Global Debt Service Coverage Ratio = Global Total Income / Global Total Debt Service

Global Total Assets = Combined Total Assets + Double Counting Adjustments

Global Total Liabilities = Combined Total Liabilities + Double Counting Adjustments

Global Net Worth = Global Total Assets – Global Total Liabilities

Global Debt To Equity Ratio = Global Total Liabilities / Global Net Worth 

 

I am working on getting some clarifications on some of the items and how the lender calculates them.  For instance, I know that some lenders use 75 percent of gross rents to calculate property income.  I am not sure if that is what this lender does.  I will post more about this as I get more clarity.  Hopefully the ratios above will help you when structuring the measures you track to increase your ability to borrow.