Commercial loan sizing calculator
A lender sizes a commercial loan three ways at once — debt service coverage, loan to value, and debt yield — and then lends the lowest of the three answers. Most owners only ever check loan to value, which is why the number they expect and the number they are offered rarely match. This calculator runs all three and names the one that binds.
A lender lends the smallest of three answers
This is the single most useful thing to understand about commercial debt, and it is the thing most owners get wrong.
You are probably thinking in loan to value. The property is worth two million, the lender goes to seventy five percent, so the loan is one and a half million. That is one of the three tests, and it is often not the one that decides.
The lender also runs debt service coverage — does the income cover the payment with a margin — and debt yield, which asks what the property earns against the loan with no reference to the rate or the amortisation at all. It then lends the lowest of the three answers.
Why this matters more than the rate
An owner who finds out at the term sheet that the loan is smaller than expected has a problem that cannot be fixed with a phone call. The equity gap has to come from somewhere, and it comes with two weeks' notice.
Knowing which constraint binds tells you what would actually help:
- Debt service coverage binds — a longer amortisation or an interest-only period raises the loan. A lower price does not.
- Loan to value binds — a better valuation raises the loan. Better income does not.
- Debt yield binds — only more income helps. Nothing about the loan structure moves it.
That is three different conversations, and you can only have the right one if you know which test you failed.
The adjustment nobody warns you about
The net operating income on the offering memorandum is not the number the lender uses. Expect it to be recalculated with a market management fee, a replacement reserve, and property tax reassessed at your purchase price rather than the seller's basis. On a property where the seller managed it themselves and held it for fifteen years, that combination can take ten to fifteen percent off the income before sizing even starts.
Put the adjusted number in, not the brochure number, or the calculator will flatter you the same way the brochure did.
Common questions
Why does a lender use three tests instead of one?
Each one protects against a different failure. Loan to value protects the lender if the property is sold in a hurry. Debt service coverage protects against the income falling. Debt yield protects against both at once, because it ignores the interest rate and the amortisation entirely and asks what the property earns against the loan. A lender that used only loan to value would be exposed the moment rates moved.
Which test usually binds?
At low interest rates, loan to value. As rates rise, debt service coverage takes over, because the same income supports a smaller loan when the payment goes up. Debt yield binds most often on a property with a high valuation relative to its income, which is common in a compressed cap rate market. The calculator names whichever one is smallest for your inputs.
What is a normal debt service coverage requirement?
1.25 is the common floor on stabilised multifamily and industrial. Some lenders want 1.30 or more on a property with shorter leases or a single tenant. A ratio of 1.25 means the property earns 25 percent more than the annual debt payment, which is the lender's margin for a bad year.
Does the net operating income I put in have to be the one on the offering memorandum?
No, and it usually should not be. A lender recalculates it. It applies a market management fee even where the owner manages the property themselves, deducts a replacement reserve per unit or per square foot, and reassesses property tax at the new purchase price rather than the seller's basis. Those three adjustments alone often move the number by ten percent or more, and always downwards.
Is the result a quote?
No. It is arithmetic on the assumptions you typed. A real quote depends on the property, the sponsor, third-party reports and the lender's appetite on the day. What the calculator is good for is telling you which constraint you are fighting, because that decides what would actually improve your outcome.
Last checked 2026-08-08. A rate, a spread and a lender's criteria all move within a quarter — if this page is more than a quarter old, ask us for the current number.