Commercial Lending Series: Debt Service Coverage Calculations in Underwriting

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 Commercial Lending Series: Debt Service Coverage Calculations in Underwriting



Thursday, June 14, 2012

12 - 1:30 pm PT
1 - 2:30 pm MT
2 - 3:30 pm CT
3 - 4:30 pm ET

When underwriting a commercial loan, financial institutions are expected to perform a cash flow analysis leading to a documented debt-service coverage ratio (DSCR).  To do so, you must first analyze the ability of the primary repayment source to continue sustainable repayment.  Next, you should perform a global cash flow analysis to document the ability of the secondary repayment sources to provide financial support for continued sustainable repayment.

Several questions arise.  Which DSCR calculation method should be used, EBITDA or UCA?  Should the primary or global DSCR result be used?  Should a deduction for taxes and living expenses be included?  Should underwriting be based on the DSCR before or after distributions?  How are guaranteed payments or installment/contract sales handled?  What happens with missing debt service schedules?  Should loans to stockholders be included?  This presentation will address these issues.

Continuing Education: Attendance verification for CE credits provided upon request.

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  • Issues found during loan reviews
  • Ability to service debt
  • EBITDA approach to computing DSCR
  • UCA cash approach to computing DSCR
  • Using tax returns to compute cash flow
  • Stress testing
  • Global DSCR
  • Debt service coverage for CRE loans
  • Project lending
  • Investment rental properties
  • Loan modifications

This informative session will benefit everyone involved in underwriting and approving commercial loans, including executive management on the loan approval committee, commercial loan officers, credit analysts, loan underwriters for commercial loans, branch managers with commercial lending authority, loan review staff, and auditors.

S. Wayne Linder,
Young & Associates, Inc.