Underwriter Access-Commercial & Investment Lending Guidance

1. Borrower-Related Issues

Credit History Problems

• Low credit score, past defaults, late payments
• Too much existing debt (high debt-to-income ratio)

Insufficient Income or Cash Flow

• Income too low or inconsistent
• Business doesn’t produce enough cash flow to cover debt service (low DSCR)

Lack of Liquidity / Reserves

• No proof of funds for down payment or closing costs
• No cash reserves for emergencies (banks like to see 6–12 months of mortgage payments in reserves)

2. Property-Related Issues

Low Appraisal Value

• Appraised value is below purchase price → higher LTV (loan-to-value) ratio than the bank allows
• Bank won’t lend more than their internal LTV cap (often 70–80% for investment properties)

Poor Property Condition

• Major repairs needed, unsafe structure, environmental issues
• Bank doesn’t want to risk collateral losing value

Unstable or Speculative Market

• Location has high vacancy rates, falling prices, weak demand
• Bank sees higher foreclosure or price-drop risk

3. Loan Structure & Terms

Too Risky of a Deal

• High leverage (90–100% financing)
• Short-term balloon loans with no clear exit strategy

Loan Purpose Doesn’t Fit Bank Policy

• Some banks don’t finance land development, construction, or certain asset classes (mobile home parks, hotels, etc.)

4. Regulatory & Compliance Factors

Bank Capital Requirements

• Regulations (Basel III, FDIC rules) limit how much risky real estate exposure a bank can hold
• If the bank’s real estate portfolio is already full, they may say no even to good deals

Anti-Money Laundering / KYC Concerns

• Suspicious funding sources or unclear ownership structures may trigger compliance denials

5. Profitability for the Bank

Loan Size Too Small or Too Big

• Too small → not worth the underwriting cost
• Too big → exceeds bank’s lending limit or concentration cap

Thin Margins

• Low interest rate or high competition might make the deal unattractive for the bank

 Bottom Line

Banks say no when:

• The risk is too high
• The collateral isn’t strong enough
• The borrower can’t prove repayment ability
• The loan doesn’t fit their policy or portfolio mix

1. Direct Cash Flow Modeling

Purpose: Track actual cash inflows and outflows in detail.

Approach: Uses real transaction data (customer payments, vendor payments, payroll).

• Timeframe: Short-term (weekly, monthly)
• Best for: Liquidity management, working capital planning, crisis forecasting
• Example: Beginning Cash + Cash Inflows – Cash Outflows = Ending Cash
• Tools: Excel, ERP systems, treasury management software

2. Indirect (Accrual-Based) Cash Flow Modeling

Purpose: Derive cash flow from accrual-based financial statements.

Approach: Start with net income, adjust for non-cash items and changes in working capital.

• Timeframe: Monthly, quarterly, annually
• Best for: Financial reporting (e.g., Statement of Cash Flows)

Example:

Net Income

+ Depreciation & Amortization

± Changes in Working Capital

± Other Adjustments

= Operating Cash Flow

3. Discounted Cash Flow (DCF) Modeling

Purpose: Value a business or project based on future cash flows.

Approach: Forecast future free cash flow, then discount back to present value.

• Timeframe: 5–10+ years forward
• Best for: Valuation, M&A analysis, capital budgeting

Key Metrics:

Free Cash Flow (FCF): after-tax operating cash flow minus capital expenditures

Terminal Value: estimates cash flow beyond forecast horizon

WACC: discount rate used

4. Scenario & Sensitivity Modeling

Purpose: Understand how cash flow changes under different assumptions.

Approach: Build multiple versions of the model (base case, upside, downside).

• Best for: Risk management, stress-testing
• Variables Tested: revenue growth, pricing, costs, interest rates, customer churn

5. Rolling Forecast Models

Purpose: Continuously update cash flow projections based on latest data.

Approach: Each month, extend the forecast by another month (or quarter).

• Best for: Agile businesses needing frequent updates
• Benefit: Avoids static annual budgets, reflects real-time changes

6. Project or Investment-Specific Cash Flow Models

Purpose: Model cash flow for a single initiative.

Examples:

• Capital project model: CAPEX spend, ROI, payback period
• Real estate pro forma: rent roll, NOI, financing assumptions
• Startup runway model: burn rate, fundraising needs

7. Leveraged & Unleveraged Free Cash Flow Models

Purpose: Separate operating performance from financing structure.

• Unlevered Free Cash Flow: cash available to all investors (debt & equity holders)
• Levered Free Cash Flow: cash available only to equity holders after debt payments

What property types are considered?

1. Residential Property (1–4 Units)

Easiest to Finance

Loan Types: Conventional mortgages, FHA/VA/USDA loans, portfolio loans

Typical Terms:

High LTV allowed (up to 95–97% for owner-occupied, 80% for investment)

15–30 year fixed-rate terms widely available

Lower rates (compared to commercial)

Why Banks Like It:

Large, liquid secondary market (Fannie Mae/Freddie Mac)

Easy to value with comps

Lower perceived risk

2. Small Multifamily (2–4 Units)

Still Residential — but Slightly Stricter

Loan Types: Conventional (residential), DSCR loans

Typical Terms:

LTV up to ~80% (sometimes lower for investment)

Slightly higher rates than single-family homes

Why Banks Care:

More reliance on rental income → banks check DSCR

Still easy to sell and value, so relatively low risk

3. Large Multifamily (5+ Units)

Considered Commercial Real Estate

Loan Types: Commercial mortgages, agency (Freddie Mac/Fannie Mae multifamily)

Typical Terms:

LTV usually 65–80%

Amortization often 20–30 years, sometimes with balloon payments

Interest rates slightly higher

Why Banks Scrutinize It:

They focus on property income, not just borrower income

Underwriting based on NOI and Debt Service Coverage Ratio (DSCR)

More expensive to foreclose on and manage if something goes wrong

4. Commercial Property (Retail, Office, Industrial, Warehouse)

Higher Risk, More Complex Underwriting

Loan Types: Commercial real estate (CRE) loans, SBA loans (if owner-occupied)

Typical Terms:

LTV often 60–75%

Rates higher, typically variable

Shorter terms (5–10 year balloons with 20–25 yr amortization)

Challenges:

Value depends on lease terms, tenant creditworthiness, market conditions

Harder to sell if bank must foreclose

5. Specialty Property Types

Many Banks Avoid or Restrict

Examples: hotels, gas stations, mobile home parks, self-storage, restaurants, churches.

Why Banks Hesitate:

Cash flow is very sensitive to market cycles

Hard to repurpose (e.g., a church isn’t easily turned into something else)

Often require industry experience from borrower

Solutions:

SBA loans (if you are owner-occupant)

Niche lenders specializing in that asset type

6. Raw Land / Construction Loans

Most Difficult to Finance

Loan Types: Land loans, construction-to-perm loans

Typical Terms:

LTV capped very low (40–60%)

Short terms (1–3 years)

Higher interest rates

Why Banks Are Cautious:

No income-producing asset yet

Value depends entirely on future development and zoning

Key Takeaways

Riskier property types = lower LTV, shorter terms, higher interest rates.

Income-producing properties are judged on DSCR and NOI, not just your credit/income.

Special-use or land deals often require niche lenders or SBA programs.

Any fees related to the transaction are determined on a case by case basis.  Conventional and government insured loans rarely involve upfront fees because everything fits in a box and it is easier to determine qualifications.  And indeed, Fair Lending laws govern it tightly.  With investment and commercial lending, there aren’t as many regulations.  And more importantly, there is a lot more upfront work and underwriting time spent on investment and commercial lending, so much so that it becomes imperative to focus team resources on deals that are ready and committed. For discussion purposes:

1. To Cover Processing & Underwriting Costs

Lenders spend money to review your loan even if it never closes:

• Credit checks
• Appraisals (to verify collateral value)
• Title searches and legal review
• Staff time for underwriting and compliance checks

Upfront fees help offset these costs so the lender doesn’t lose money on applications that never fund.

2. To Lock In Resources

Especially on commercial and real estate investment loans, lenders may:

• Commit capital reserves for your deal (reducing what they can lend to others)
• Incur costs getting internal approvals

Charging an upfront fee signals you’re committed, so they aren’t tying up capital for a “window shopper.”

3. To Reduce Risk of Abandonment

Without an upfront cost, borrowers could shop the same deal with multiple lenders and walk away at the last minute.

• A fee ensures you have “skin in the game.”
• It discourages frivolous applications and wasted underwriting effort.

4. To Pay for Third-Party Services

Some upfront fees are simply pass-through costs:

• Appraisal fee: pays a licensed appraiser
• Environmental report fee: for commercial properties
• Inspection or survey fee: verifies property condition

These services must be paid whether or not the loan closes.

5. To Compensate for Discounted Interest Rates

Sometimes lenders let you “buy down” the interest rate by paying points upfront.

• 1 point = 1% of loan amount
• Lowers your monthly payment over the life of the loan

This is optional but common in mortgages.

Common Types of Upfront Fees

• An application fee covers the basic credit check and administrative costs, and it is rarely refundable.
• A processing or underwriting fee pays for staff review and compliance work, and it is usually not refundable.
• A commitment fee reserves funds for you, and it sometimes applies toward closing costs.
• An appraisal fee covers the professional valuation of a property, and it is not refundable since the work has already been completed.
• Origination points are prepaid interest used to lower your rate, and while they are not refundable, they affect your long-term cost.

Key Takeaway

Lenders charge upfront fees to:

• Cover real costs they incur before closing
• Secure your commitment so they don’t waste time/capital
• Ensure third-party vendors (appraisers, title companies) get paid

In explaining the changes in market demand for investment and commercial real estate, we need to understand what factors effect demand, which in turn, effect prices and value:

1. Demand Increases → Positive Pressure on Market

When more tenants or buyers want space than what’s available:

Vacancy Rates Fall 

• Space fills up faster, landlords have less competition

Rents Rise

• Landlords can charge higher lease rates and offer fewer concessions

Property Values Increase

• Net Operating Income (NOI) grows → higher valuations
• Cap rates may compress because investors accept lower yields for safer, in-demand assets

More Development & New Construction

• Builders enter the market to meet demand
• Could eventually balance or even overshoot supply

Lenders Get More Aggressive

• Easier loan approvals, higher LTVs, better rates
• Banks see less risk when properties are leased quickly

2. Demand Decreases → Negative Pressure on Market

When fewer tenants or buyers want space:

Vacancy Rates Rise

• Landlords compete harder to fill space

Rents Drop or Stall

• More concessions (free rent, tenant improvements) offered
• Lower NOI → lower property valuations

Cap Rates Expand

• Investors demand higher returns to justify risk
• Property prices may drop even if income stays the same

Distressed Sales & Foreclosures Can Spike

• Owners who can’t cover debt service may be forced to sell at discounts

Lenders Tighten Credit

• Lower LTVs, higher interest rates, more scrutiny on tenants and leases

3. Property Type Matters

Demand can change differently across property types, even in the same market:

• Office demand is driven by jobs and remote work trends, where increased remote work leads to lower demand and higher vacancy.
• Retail demand is influenced by consumer spending and e-commerce, with more online shopping shifting demand away from malls toward fulfillment centers.
• Industrial and warehouse demand is fueled by e-commerce and supply chain needs, where high demand drives new construction and rent growth.
• Multifamily demand is tied to population growth and affordability, with demand increasing when buying a home becomes too expensive.
• Hospitality demand depends on travel and tourism trends, where a recession or pandemic causes demand to drop and average daily rates (ADR) to fall.

4. Macro Factors That Move Demand

Interest Rates & Financing Costs – Higher rates reduce investor demand (higher cap rates).

Job Growth / Local Economy – Strong employment drives office and retail demand.

Population Trends – Migration patterns affect multifamily, retail, medical office demand.

Technological Shifts – E-commerce reshapes retail & warehouse demand.

Regulation & Zoning – Can restrict new supply, amplifying demand impact on prices.

5. Lag Effect

Commercial property markets don’t adjust overnight:

• Leases are long-term (3–10 years), so rent changes take time to show up
• Construction pipelines mean new supply might hit just as demand slows (exacerbating downturns)
• Valuations & sales may lag actual demand until deals reset prices

Bottom Line

Changes in market demand affect everything — rents, valuations, lender behavior, and investor sentiment.

• Strong demand → rising rents, higher values, easier financing
• Weak demand → higher vacancy, falling values, tighter credit

There are a few steps along the way to navigate the process with U/W/Access.  It is important to know that every deal or project is different, and there is many ways to structure a deal, knowing that success depends on that approach.  Throughout this process, clients will be well aware of the viability of their request, and the plan to execute.  Here are the steps to get through the qualification process:

• Client engages U/W/Access via email or phone to express interest, and share project details?
• U/W/Access shares feedback and determines viability of project.
• At this point, there may or may not be a credit inquiry fee.  This will go towards due diligence; the cost of a credit report, background check, and property profile research.  This amount is paid up front, to U/W/Access.
• Client applies to U/W/Access via online application, or document email process.
• U/W/Access performs due diligence to determine if application is valid.
• At this point, there may or may not be an application fee.  This will go towards the cost and time spent doing the full underwriting on the file.  This amount is paid up front, to U/W/Access.
• U/W/Access completes underwriting and shares strategy with client.  At this point, there may or may not be a cost or fee related to the ordering of an appraisal or broker valuation.  This amount is paid up front, to the third party performing the valuation.
• With underwriting complete, and third party vendors engaged, U/W/Access moves into Processing the file.  There is a consistent back and forth of gathering documents.
• Client is given a decline or approval, with closing being scheduled 7-14 days after completion of appraisal or valuation.

All fees and costs are available via email with U/W/Access and are determined on a case by case basis.