FAQ: underwriting and collateral

Up to 75% loan-to-cost and up to 65% loan-to-value. The borrower’s equity is the cushion beneath our loan, and we want it to be real. See leverage: loan-to-value, loan-to-cost and debt multiples.

Loan-to-cost divides the loan by the total cost of the project, including purchase price and planned spending. Loan-to-value divides the loan by the current or stabilized value of the collateral. Illustrative arithmetic: a $14M loan on a $20M total cost is 70% LTC; on a $25M appraised value it is 56% LTV. Both tests can apply to the same loan.

Both, for different purposes. As-is value tells us what the collateral is worth if the plan stalls today. As-stabilized value tells us what it should be worth when the plan is done. We size to protect principal on the as-is case, not only on the value the plan promises.

Real and financial assets: commercial real estate, industrial equipment, corporate receivables, fund NAVs, and other financial assets. Every loan is underwritten to the value of what stands behind it.

We are asset-focused lenders, so collateral value is the anchor. Cash flow still matters: it pays the interest and often the loan. Asset-based underwriting asks what the collateral would fetch if we had to realize it; cash-flow underwriting asks what the business can service. See cash flow versus asset-based underwriting.

Debt service coverage ratio is cash flow available for debt service divided by required interest and principal. Illustrative arithmetic: $2.4M of net operating income against $2.0M of debt service is 1.2x. It shows how much room cash flow has before it fails to cover the loan. See coverage and liquidity.

Debt yield is net operating income divided by the loan amount. Illustrative arithmetic: $1.5M of NOI on a $15M loan is a 10% debt yield. Because it ignores the interest rate and amortization, lenders use it as a plain measure of how much income supports each dollar of debt.

As an owner would: by what it is worth, what it earns and what it would take to realize it. We use third-party appraisals, field exams and valuation work as the asset requires, and we test the assumptions ourselves. Because Caldrion also owns and operates real assets, we can value collateral accurately. See collateral valuation and diligence.

Confirmatory diligence on the collateral: third-party reports, site visits, field exams or valuation work as the asset requires, followed by documentation by counsel. For every loan, expect background checks on principals, a review of corporate and legal structure and confirmation of title, liens and insurance.

A field exam is an on-site review of an asset-based borrower’s receivables, inventory and reporting systems. It tests whether the collateral exists, whether it is collectible or saleable and whether the borrowing-base reporting can be trusted. See the borrowing base.

Every loan needs a clear path to repayment, by sale, refinance or cash flow. We test whether that exit works under less favorable conditions, and we are wary of loans that can be repaid only if one specific event occurs. See coverage and liquidity.

Sometimes. Seasonal, cyclical or transitional companies whose collateral is stronger than their recent earnings suggest can fit an asset-based structure. Turnarounds can fit where the operational plan is credible and the collateral coverage is strong. See asset-based lending explained.

Real equity at risk, a credible plan, the experience to execute it, transparent information and candor about problems. Complexity does not disqualify a request; surprises slow everything down.

Collateral we cannot value or, if necessary, take control of and realize. We also do not make unsecured loans, and we do not lend against collateral outside the United States. See the exclusions on our criteria page.