Quick Answer
Commercial lending evaluates the business's cash flow, the value of collateral, and the strength of personal and business credit profiles before extending credit.
Key Takeaways
- Debt service coverage ratio is a primary underwriting metric.
- Collateral can offset weaknesses in other factors.
- Personal guarantees remain common in small commercial lending.
DSCR in Plain Language
Debt service coverage ratio compares cash flow available to debt payments. Educational sources commonly reference 1.25 as a frequently used threshold.
Frequently Asked Questions
Is a personal guarantee always required?
Personal guarantees are common in small-business commercial lending and become less common as business size and credit strength increase.