Understanding Your Loan Options
Explore Tailored Lending Solutions Designed for You
At Keystone Capital Funding Group, we provide fast, flexible private money lending solutions to fit your unique financial needs. Whether you’re expanding your business, investing in real estate, or funding personal ventures, we’re here to help you navigate your options with ease and confidence.
Understanding Your Loan Options
At Keystone Capital Funding Group, we’re not your traditional lender. We are a mortgage brokerage, lending for business-based purposes only. That means we can provide any funding solution to make the terms work for you, ensuring a straightforward funding process.
Key Approval Formulas
Top Debt
- Definition: Top Debt refers to senior or primary debt that takes precedence in repayment in the event of a liquidation. It is typically secured by collateral and has lower interest rates due to its reduced risk.
- Example: For instance, if a company takes out a $1,000,000 loan secured by real estate, this loan is considered top debt as it must be repaid first in the event of default.
- Formula: Top Debt Payment = Income × Debt-to-Income Ratio
- Example Calculation: With an annual Net Operating Income (NOI) of $500,000 and a debt-to-income ratio of 20%, the top debt payment would be $100,000 per year.
Bottom Debt
- Definition: Bottom Debt is considered subordinate or junior debt, which is repaid only after all top debt obligations have been met. Due to its higher risk, bottom debt typically carries higher interest rates.
- Example: If a business secures a $1,000,000 top debt loan and additionally borrows $200,000 as bottom debt, the $200,000 is subordinate to the initial loan.
- Formula: Bottom Debt Payment = (Income After Top Debt) × Debt-to-Income Ratio for Bottom Debt
- Example Calculation: If the NOI is $500,000 and $100,000 is allocated for top debt payments, the remaining $400,000 can be used to calculate bottom debt payments. At a 35% debt-to-income ratio for bottom debt, the payment would be $140,000.
Debt Service Coverage Ratio (DSCR)
- Definition: DSCR is a measure of a company’s ability to use its operating income to cover all its debt payments, indicating the cash flow adequacy.
- Formula: DSCR = Net Operating Income (NOI) / Total Debt Service
- Example: A company with an NOI of $200,000 and total debt payments of $150,000 would have a DSCR of 1.33, indicating sufficient income to cover debt payments by 133%.
Debt Coverage Ratio (DCR)
- Definition: Similar to DSCR, the Debt Coverage Ratio is often used for evaluating cash flow coverage, but typically focuses more directly on cash flow rather than NOI.
- Example: A rental property generating $100,000 in annual cash flow with $80,000 in debt service results in a DCR of 1.25, showing that there is 25% more cash flow than needed to cover the debt.
Loan-to-Value (LTV)
- Definition: LTV ratio compares the amount of a loan to the value of the property or asset being financed, indicating the percentage of financing provided by the lender.
- Formula: LTV = (Loan Amount / Appraised Property Value) × 100
- Example: For a property appraised at $400,000, with a loan amount of $300,000, the LTV would be 75%, meaning the lender is financing 75% of the property’s value.
Analyzing Balance Sheets
- Definition: A balance sheet provides a snapshot of a company’s financial position at a specific point in time, showing what the company owns (assets) and owes (liabilities), as well as the equity invested by shareholders.
- Components:
- Assets: Resources owned by the company that are expected to bring future economic benefits. Examples include cash, inventory, and property.
- Liabilities: Obligations the company must fulfill in the future, such as loans, accounts payable, and mortgages.
- Equity: The residual interest in the assets of the company after deducting liabilities. It includes funds contributed by owners and retained earnings.
- Example Analysis: Consider a company with the following balance sheet:
- Assets: $500,000
- Liabilities: $300,000
- Equity: $200,000 This shows the company is financed 60% by liabilities (debts) and 40% by equity, illustrating a debt-to-equity ratio of 1.5.