Net operating income
Lenders generally start with property income, apply vacancy or collection assumptions where appropriate, and subtract operating expenses. Financing costs and income taxes are not normally part of NOI itself.
Plain-language guide
How commercial plaza financing works.
Commercial mortgage underwriting brings together property cash flow, value, tenancy, borrower strength, due diligence, and lender policy. No single metric decides every file.
Core concepts
The ideas behind the lender's questions
These explanations are general. Each lender calculates and interprets information under its own policies and may adjust income, expenses, value, or debt service for underwriting purposes.
DSCR
Debt service coverage ratio compares the underwritten net operating income with the mortgage debt payments used by the lender. It is a capacity test: does the property's income leave room after servicing the proposed debt?
LTV
Loan-to-value compares the mortgage amount with the lender-supported property value. DSCR and LTV answer different questions, and the supportable loan may be constrained by either one.
Commercial amortization
The amortization period spreads principal repayment over time, while the mortgage term governs how long the agreed terms apply. Commercial terms and amortizations are negotiated and may differ from residential conventions.
Tenant mix
A lender may examine concentration, tenant businesses, lease structures, rent levels, payment history, and how the tenants work together. A diverse rent roll can still have risk if several material leases turn over together.
Lease rollover
Expiry dates, renewal options, co-tenancy language, termination rights, and required tenant improvements can affect the durability and cost of future income. Lenders may test what happens when leases change.
Borrower strength
Commercial underwriting also reviews the owners and guarantors, including their experience, liquidity, financial position, credit, ownership structure, and ability to address unexpected property needs.
Property diligence
Valuation, environmental review, building condition, insurance, title, zoning, and legal due diligence help a lender understand the security and identify conditions that must be satisfied.
Sources of financing
Different lender categories solve different kinds of files.
Banks, credit unions & commercial lenders
May suit stabilized properties and borrowers that fit their property, cash-flow, covenant, documentation, and relationship requirements.
Insured programs
CMHC insurance is principally associated with eligible multi-unit residential financing. A retail plaza is not automatically eligible; mixed-use properties require program-specific review of the residential and non-residential components.
Private & alternative lenders
May consider transitional, time-sensitive, or non-conforming situations, often with different pricing, fees, conditions, security, and exit expectations. Suitability depends on the full file.
A focused first conversation