Commercial loan sizing calculator
A lender does not size your loan with one ratio. It runs loan to value, minimum coverage, and minimum debt yield, then funds the smallest answer. This runs all three and tells you which one is holding you back.
What each test allowed
| Test | Maximum loan | Left on the table |
|---|---|---|
| Loan to valueValue times the maximum advance rate. | $6,500,000 | $171,567 |
| Minimum DSCRBindingNOI divided by the coverage floor, then divided by the annual constant. The constant is the amortizing one, which is what the lender sizes to even when the loan starts interest only. | $6,328,433 | This is the cap |
| Minimum debt yieldNOI divided by the debt yield floor. No rate, no amortization, no appraisal. | $6,666,667 | $338,234 |
What moves the answer
Each row is a full re-solve, not a slope. That matters, because a change big enough to move proceeds is often big enough to change which test binds.
| Change | Proceeds | Difference | Then bound by |
|---|---|---|---|
| NOI up $10,000 | $6,433,907 | +$105,474 | minimum DSCR |
| NOI down $10,000 | $6,222,959 | -$105,474 | minimum DSCR |
| Rate down 25 bps | $6,496,489 | +$168,056 | minimum DSCR |
| Rate up 25 bps | $6,167,147 | -$161,285 | minimum DSCR |
| Amortization up 5 years | $6,500,000 | +$171,567 | loan to value |
| Max LTV up 1 point | $6,328,433 | No change | minimum DSCR |
| Min DSCR down 0.05x | $6,500,000 | +$171,567 | loan to value |
| Min debt yield down 25 bps | $6,328,433 | No change | minimum DSCR |
The schedule
Debt service, the split between interest and principal, and the balance you refinance or pay off at the end of the term. Coverage is shown against today's NOI held flat, so it isolates the effect of the debt rather than mixing in a growth assumption.
Equity here is price minus proceeds. It excludes closing costs, origination fees, reserves, and working capital, so the real check at the table is larger. Cash on cash is year-one levered cash flow over that equity figure, before any capital expenditure.
This page sizes one loan against one NOI. A real underwriting has a rent roll behind that NOI, a renovation plan in front of it, and an exit at the end. Altyst reads the documents and builds all of it.
How a lender arrives at the number
Ask three brokers how much debt a deal will carry and you will get three ratios back. The reason they disagree is that each of them is quoting a different test, and a real credit committee runs all of them. The loan is whichever test produces the smallest number, and everything above that number is a conversation about a different deal.
The three tests measure different risks, which is why nobody settled on one of them. Loan to value asks what the collateral is worth if it has to be sold. Debt service coverage asks whether the income covers the payment. Debt yield asks what the lender earns if it ends up owning the building. A deal can pass two of those handily and be stopped cold by the third.
Loan to value
Loan divided by value, capped at whatever the lender will advance. It is the oldest of the three and the easiest to game, because value is an opinion produced by an appraiser. When LTV is the binding test, the deal has spare income and the constraint is the collateral. More proceeds means a higher value or a lender with a higher advance rate.
Debt service coverage ratio
NOI divided by annual debt service. A 1.25x minimum means the property must produce a quarter more income than the loan payment consumes. To turn that into a loan amount you divide the debt service the property can support by the annual constant, which is debt service per dollar of loan. Coverage is the test that moves when the rate moves or the amortization stretches, and it is the test that has done most of the work of shrinking proceeds in a higher-rate market.
Debt yield
NOI divided by the loan amount, with no appraisal and no debt terms anywhere in it. Debt yield became a standard test after 2008 for exactly that reason. In 2006 a lender could hold its LTV and DSCR limits constant while a rising appraisal and a falling coupon quietly pushed proceeds up on a property whose income had not changed at all. Debt yield closes that door. It is the test that binds on richly priced, low-cap-rate assets, and neither a cheaper coupon nor a friendlier appraiser will move it.
A worked example
Take a $10,000,000 property producing $600,000 of NOI, which is a 6.0% going-in cap rate. The lender quotes 6.5% on a 30-year amortization, and its credit box is 65% LTV, a 1.25x minimum DSCR, and a 9.0% minimum debt yield. Those are the values the calculator loads with, so you can follow along above.
- Loan to value allows $6,500,000. That is $10,000,000 times 65%.
- Debt yield allows $6,666,667. That is $600,000 divided by 9.0%.
- Coverage allows $6,328,433. The property can support $480,000 of debt service, which is $600,000 divided by 1.25. Dividing a payment by the annual constant turns it into a balance, and at 6.5% over 30 years the constant is 7.584816%. Round it to 7.58% before you divide and you get $6,332,454 instead, about $4,000 high. Close enough to sanity-check a term sheet, not close enough to quote from.
The loan is $6,328,433, and coverage is the binding test. Notice what that rules out. The borrower who argues the property is really worth $10,500,000 gets nothing for the argument, because LTV already had $171,567 of unused room and debt yield had $338,234. The levers that work here are the amortization schedule and the coupon. Nothing else touches it.
Raise NOI to $700,000 and the picture inverts. Coverage would now allow $7,383,172 and debt yield $7,777,778, but loan to value is unchanged at $6,500,000, so that is the loan. The same borrower who got nothing for a higher valuation a moment ago now gets the full benefit of one.
When does debt yield bind?
Less often than people expect, and the reason is arithmetic rather than judgment. The coverage test allows NOI divided by the DSCR floor divided by the constant. The debt yield test allows NOI divided by the debt yield floor. NOI appears in both, so it cancels: coverage is the tighter of the two whenever the DSCR floor times the constant exceeds the debt yield floor. Changing NOI cannot swap them.
At a 1.25x floor and a 9.0% debt yield floor, that crossover sits at a constant of 7.20%, which on a 30-year amortization is a coupon just above 6.0%. Above that coupon, coverage is tighter than debt yield no matter what the property earns. Below it, debt yield is tighter. Loan to value sits outside that argument and can still beat both, which is why the example below has to move NOI as well as the rate. Drop the rate here to 5.25% and NOI to $550,000, and debt yield binds at $6,111,111 while coverage would have allowed $6,640,062 and loan to value $6,500,000. This is the mechanical reason debt yield went quiet during the high-rate years and why it starts governing deals again as coupons come down.
Where the numbers come from
Payments are monthly and the periodic rate is the annual coupon divided by twelve. The level payment is computed on the full amortization schedule: a loan with twenty-four months of interest only followed by a thirty-year amortization pays the 360-month payment when it starts amortizing, not a payment recomputed over 336 months. Balances, interest charges, and principal reductions are quantized to cents each month the way a servicer posts them, so the balloon at the end of the term matches an amortization schedule rather than drifting a dollar away from one.
Interest accrues 30/360 here, meaning every month is one twelfth of a year. Plenty of commercial loans accrue actual/360 instead, charging the real number of days against a 360-day year, which picks up roughly five extra days of interest a year. In the common version of that structure the payment is still the 30/360 amortizing payment and only the accrual changes, so proceeds come out the same and the balloon lands a little higher than the schedule below shows.
The coverage test is run against the amortizing payment even when the loan starts interest only. A lender sizes to the payment the property has to carry for most of the term, so an interest-only period improves early cash flow and enlarges the balloon without increasing proceeds. The exception, which this page does not model, is a loan that is interest only for its whole term: there is no amortizing payment to carry, so lenders size those against the interest-only payment. Set the interest-only months equal to the term above and the page will still size on the amortizing constant, which reads low. Anything short of that follows the convention described here, and so does the Altyst engine, which this page's arithmetic is tested against directly.
What this page does not do
It sizes one loan against one NOI at one moment. It does not build the NOI from a rent roll, project it forward, layer a mezzanine piece or a supplemental behind the senior loan, model a refinance, or carry the result through to a levered return. Those are underwriting questions rather than sizing questions, and they need the documents behind the deal. It also is not advice: it is arithmetic on the numbers you typed, and your lender's credit box is the only one that counts.
Questions
How does a lender decide the loan amount?
By running several tests and funding the smallest answer. The three standard ones are loan to value, a minimum debt service coverage ratio, and a minimum debt yield. A loan that passes two of them and fails the third is sized by the third. This is why quoting one ratio in isolation usually overstates proceeds.
What is debt yield and why do lenders use it?
Debt yield is annual NOI divided by the loan amount. It is the return a lender would earn if it took the property back on day one and operated it. Unlike LTV it does not depend on an appraisal, and unlike DSCR it does not depend on the interest rate or the amortization schedule. That independence is the point: cheap debt and a generous valuation both flatter the other two tests, and neither can move debt yield.
Does an interest-only period get me a bigger loan?
Usually not. Lenders size the coverage test on the amortizing payment even when the loan starts interest only, because that is the payment the property has to carry for most of the term. What interest only changes is cash flow in the early years and the balance left at maturity, which is larger because less principal was repaid. This calculator follows that convention, so switching interest only on changes the schedule and the balloon but leaves the sized proceeds alone. The exception is a loan that is interest only for the entire term. It never reaches an amortizing payment, lenders size it against the interest-only payment, and this page does not model that case.
What is a mortgage constant?
Annual debt service per dollar of loan, once the loan is amortizing. A 6.5% rate on a 30-year schedule has a constant near 7.58%, meaning every dollar of loan costs about 7.6 cents a year in principal and interest. Dividing the debt service a property can support by the constant converts a payment into a loan balance, which is how the DSCR test is solved.
Would a higher appraisal get me more debt?
Only if loan to value is the binding test. If coverage or debt yield is binding, the appraisal is not what is holding proceeds down and raising it changes nothing. That is why the result names the binding test. A loan amount on its own does not tell you whether it is worth going back to argue with the appraiser.
Which NOI should I enter?
The one the lender will underwrite, which is often lower than the one on the marketing package. Lenders typically apply their own vacancy factor, add a management fee whether or not the seller paid one, and include a replacement reserve. If you enter the broker's NOI you will get the broker's loan amount rather than the one that gets quoted.
Can I put this calculator on my own website?
Yes, and it takes one line of HTML. There is no account and no key to request, so nothing can expire and break your page a year from now. The framed version loads no advertising script, ours or anyone else's, and sets no cookie on your readers. Keep the credit line under it and it is yours to use, including on a commercial site. The code is on the embed page.
Do you store what I type?
Not the figures. The math runs in your browser, nothing you type is sent to us, and there is no account or email field. Your scenario is written into the page address so you can bookmark it or send it to a partner, which does mean a link you share carries your figures with it. The page does carry the site's normal cookies, which the cookie notice lists; the embeddable version carries none.
The loan is one line of the model
Altyst reads the offering memorandum, the rent roll, and the T-12, builds the NOI this page asks you to type, and carries it through debt, leasing, exit, and the Excel workbook.