I recently had the chance to speak with Pat Costello at Selco Credit Union about commercial lending in Oregon. Pat, having worked at some of the biggest banks around before coming to Eugene, is not your usual small town banker. An MBA from the University of Chicago, rental ownership, and a Board spot at the Eugene ROA give him keen insight into commercial property in Lane County.
The credit crisis has many lenders in a stingy mood; they’re holding on to their capital (not readily making loans) to cover bad or questionable loans already on their books. This isn’t the case with Selco–they’re still making loans.
Two of the ratios that are critical to your loan are DCR and LTV. DCR, debt coverage ratio, is probably the most important, and the bankers like to see a minimum of 1.20 to 1.25 these days. DCR is a measure of income to debt servicing. In simple terms, the project will need to clear a dollar and twenty five cents for every dollar you’ll apply to paying down the loan.
DCR tends to be more restrictive than loan to value. In order to meet the 1.20 minimum DCR, your LTV, loan to value, ratio will most likely not exceed 70%, at least for properties around here.
Construction money is still available at Selco for good projects. Loans up to 75% LTV for interim construction funds are possible, with up 80% LTV possible for permanent financing. In today’s economic climate, I think it’s fair to say, that Selco has grown more selective on loans.
Interest rates follow the Seattle Home Loan Bank’s 5 year commercial bullet index. Loan structure is frequently fixed for 5 years before adjusting, with a 10 year call, and 25 year amortization. The banks look at the 3 C’s when scrutinizing a potential loan:
C Cash Flow
While the ratios and standards have grown more restrictive, there are local programs available to assist borrowers get more money through the Small Business Association. Pat is familiar with those too. If you’d like to reach Pat, give him a call at 744-7519.