8
8.1
8.2
8.3
Slide 1
COMMERCIAL
LENDING
Commercial Loans
Commercial Credit Analysis
Small Business Loan Programs
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Lesson 8.1
COMMERCIAL LOANS
GOALS
List purposes for commercial loans
Identify types of commercial loans
Slide 2
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THE NATURE OF COMMERCIAL LENDING
Commercial lending is lending to business
enterprises.
Commercial lending practices may apply to
individuals, such as a person who is buying
rental property.
Slide 3
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COMMERCIAL PURPOSES
Real estate
Construction
Equipment
Operations
Slide 4
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TYPES OF COMMERCIAL LOANS
Term loans
Short-term loans
Lines of credit
Real estate and equipment loans
Contract financing
Bridge loans
Leasing
Asset-based loans
Slide 5
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Lesson 8.2
COMMERCIAL CREDIT
ANALYSIS
GOALS
Identify basic ratios used in commercial
underwriting
List other items used to evaluate
commercial loans
Explain the importance of disclosure in
commercial loans
Slide 6
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COMMERCIAL CREDIT ANALYSIS TOOLS
Debt ratio is the total obligations compared to
the total income.
Loan-to-value ratio is the principal amount of the
loan divided by the value of the securing
property.
Debt service coverage ratio (DSCR) compares
net operating income to the total cost of debt.
Slide 7
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DEBT RATIO
Debt ratio  Debt  Income
Example
Monthly debt: $1,500
Monthly income: $3,000
$3,000
$1,500
Slide 8
 50%
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LOAN-TO-VALUE RATIO
Loan-to-value ratio  Principal  Market value
Example
Principal: $45,000
Market value: $100,000
$45,000
$100,000
Slide 9
 45%
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DEBT SERVICE COVERAGE RATIO
Debt service coverage ratio 
Net operating income  Total debt service
Example
Net operating income: $650,000
Total debt service: $520,000
$650,000
$520,000
Slide 10
 1.25
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OTHER EVALUATION
 In order to perform ratio and other analyses of a
company’s finances, lenders want full access to company
financial records.
 Typically, lenders want to examine the following.
 Federal and state income tax returns for three years
 Company financial statements for three years
 Year-to-date profit and loss and balance statements
 Projected cash flow estimates for at least the coming year
 Valuations and appraisals for collateral used to secure the loan
 Written business plan
 Personal financial statements of owners
Slide 11
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DISCLOSURES
Most commercial lending is regulated only by the
terms of the loan agreement and some state laws.
It is the ethical and professional responsibility of
all parties to commercial lending to see that loans
are honestly and soundly underwritten.
Slide 12
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Lesson 8.3
SMALL BUSINESS
LOAN PROGRAMS
GOALS
Describe the purpose of the SBA
Explain SBA loan eligibility requirements
Identify SBA loan options
Slide 13
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THE SMALL BUSINESS ADMINISTRATION
The Small Business Administration (SBA) offers a
number of financial, technical, and management
programs to help businesses.
Slide 14
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SBA ELIGIBILITY
Type of business
Size of business
Use of loan funds
Slide 15
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SBA LOAN TERMS AND CONDITIONS
7(a) Loan Guaranty
SBALowDoc and SBAExpress
CAPLines
Microloans
Special-purpose programs
Community Adjustment and Investment Program (CAIP)
DELTA program
Economic Injury Disaster loans
Small Business Investment Company (SBIC)
Slide 16
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