The five loan numbers every lender reads first
A term sheet looks like twenty numbers. It is really five, and the credit committee reads them in a known order. Learn that order and you stop negotiating like a tourist.
From The REbuild — see all 456 pages →
DSCR is the deal’s breathing room: net operating income divided by annual debt service. A 1.25 means the property earns a quarter more than it owes the bank. LTV is the lender’s cushion on the way down: loan against value, and every point above their comfort line costs you rate or reserves. Debt yield is the newer gatekeeper: NOI divided by the loan amount, the return the bank earns if it has to take the keys tomorrow. The loan constant tells you what the debt truly costs per dollar borrowed once amortization joins the interest rate. And amortization versus maturity is the sleeper: a thirty-year amortization priced on a five-year maturity means the real negotiation is what happens at the refinance, not the payment today.
Negotiate the binding number
Every loan has one constraint that actually binds: sometimes DSCR sizes the proceeds, sometimes debt yield does. Ask the lender which test sized your loan. That single question tells you whether to argue rate, amortization, or price, and it marks you as someone who has done this before.
Run your own numbers before any lender does. My free calculator computes DSCR, cash-on-cash, and cap rate in about a minute, and the Math appendix of the book walks every formula with worked examples.
Lenders are not asking whether you like the deal
Every commercial loan conversation comes down to five numbers, and the lender already knows them before you finish your pitch. Learn to lead with the five and you stop being someone asking for money and become someone presenting a credit the bank wants to make.
A lender is not deciding whether the deal is good. They are deciding whether they get paid back if it is not.
How the five interact
They constrain each other. Push LTV up and DSCR falls, because the payment rises on the same NOI. Rates rise and the loan amount that clears 1.25 shrinks, which is exactly what happened across this cycle: buildings did not get worse, the denominator moved and the debt that fit them got smaller. Debt yield is the lender’s protection against all of that, because it only moves when NOI or loan size does.
So when a deal fails one number, do not argue with the number. Change the input that feeds it: a lower price, a larger down payment, seller financing behind the senior loan, or a plan to grow NOI you can actually document.
Why this matters more now
In the years of cheap money you could be sloppy on these and the rate would forgive you. In this cycle the rate is the problem, and the five numbers are the difference between a deal that closes and one that sits under contract for six months until someone walks. I learned the second kind the expensive way; the five-number page is the result.
The number I watch most
Debt yield. It is the one lenders quietly lean on when they have been burned, because rates and amortization can dress up a weak deal and debt yield cannot. NOI over the loan amount is a plain question: if we had to take this back and sell it tomorrow, how much income backs each dollar we lent? When I see a deal that clears DSCR only because the rate is low or the term is long, I compute debt yield and it usually tells me what the lender is about to tell me.
What to say when a number fails
Do not argue with the lender about their floor. Ask what input would clear it, then go find that input. If DSCR is short, a seller note behind the bank lowers the senior loan and raises coverage without raising your cash. If debt yield is short, the price is too high for the income and the honest fix is a lower offer, not a longer amortization. If LTV is the issue, a partner on the equity is cheaper than losing the deal. The lender is telling you where the deal is weak. Treat it as free underwriting and fix the deal instead of the pitch.
