how to get loan on right amount?

Question

I own a commercial retail property  and am looking to refinance it. The rental income is approximately $4,000 per month, but every bank I’ve spoken to only allows me to borrow up to $300,000 against the property. This is despite the fact that the property is valued at over $1 million. It seems most commercial lenders base loan amounts on rental income rather than the property’s value. Are there any alternatives to borrow against the full property value?

Brandon Croucier · Answer

Most lenders sell their loans out.

Nobody wants a loan where the asset is underwater every month.The real question is, why is a property worth over $1M only producing $4,000/mo.

You should consider raising rents as this seems significantly below market.

Dominic Mazzarella · Answer

It sounds like the issue is with the Debt Service Coverage Ratio (DSCR), which lenders often use to determine how much they’re willing to loan. If the rental income doesn’t sufficiently cover the debt payments by their standards, they’ll limit the loan amount, even if the property is worth more.

You could try a few alternatives:

•	Look for lenders who specialize in commercial real estate and have more flexible DSCR requirements. Credit unions or smaller regional banks might be a better fit.

•	Consider a cash-out refinance with a lender that focuses more on the property’s appraised value instead of just the income.

•	Explore private lenders or hard money loans if you need higher leverage, though the interest rates will likely be much higher. Be really careful if you go this route, there are some shady actors in this space.

•	If you can, raise rents or find ways to increase the property’s income before applying again.

Have you already tried talking to multiple banks, or is this feedback from just one? Some lenders might evaluate the same deal differently. I’ve been in your situation and have had to call dozens of banks before I found one that gave me what I needed. Prepare to be tenacious to get what you want here.