One of the requests Donald Hunter™ Financial makes when you begin the commercial loan process is for your current Personal Financial Statements (PFS). The residential loan application (1003) sometimes is accepted as an alternative to the PFS, but it is not as easy to read.

A PFS should be less than 90 days old and should show your Assets, Liabilities, and Net Worth. It must show your gross income, personal debt service, and net income on an annual basis.

Personal Financial Statements enable Donald Hunter™ to calculate several key ratios for you:

You probably have heard of the Debt to Income Ratio.  Many commercial lenders look for a maximum ratio of 40% of your gross income.

A new ratio, which you probably haven’t encountered, is the Liquidity to Loan Amount ratio.  Donald Hunter™ wants to see this number go from 5% to 15%, depending upon your loan request. This ratio should be at 10% or more for construction loans.

Another ratio is Net Worth to Loan Amount.  Considering all borrowers, this ratio should be at minimum a ratio of 1.0. However, 1.5 or more would be preferred.

For small business owners, Donald Hunter™ will need to know your sources of income and calculate your personal debt to income ratio (DTI not greater than 40%). We apply any excess DTI ratios under 40% (40%-35%) to your business’s or property’s cash flow. If your DTI is greater than 40%, then we subtract the deficit (40%-45%) from your small business’ or commercial property’s cash flow.

In today’s economy, you should have a minimum Debt Service Coverage Ratio (DSCR) of 1.2 to 1.3, depending upon the small business or commercial property type.

This is the first thing Donald Hunter™ does when we look at your situation for a commercial loan, in order to quickly let you know where you stand.

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