What Is a Commercial DSCR Loan?
A commercial DSCR loan is a non-qualified mortgage loan (non-QM loan) that is provided based on a property’s cash flow. Instead of traditional eligibility factors, this no-income loan is determined by the debt service coverage ratio or DSCR. This is the ratio of the property’s gross annual rental income and its annual debt. The annual debt of a property includes costs such as the annual principal, interest, taxes, insurance, and HOA fees (if applicable). Commercial DSCR loans are for 1-4 unit investment properties that are owned by an LLC.
A DSCR loan is different from a conventional loan in that:
- It does not require proof of income.
- It generally takes much less time to get approval.
- It typically offers access to lower interest rates.
If you think an SC commercial DSCR loan sounds like the type of loan you need to expand your investments, start the process by filling out the application online now.
What Can a Commercial DSCR Loan Be Used for?
A Commercial DSCR loan in South Carolina can only be used for the following types of commercial property:
- Hotels/Hospitality: Spaces designated for guest lodging.
- Industrial: This may include manufacturing sites and product development spaces.
- Multifamily: Can range from a duplex to an apartment building.
- Retail space: This is a customer-facing storefront.
- Office space: Real estate where a company conducts business.
- Mixed-Use: A combination of the above, such as residential apartments built above commercial space.
- Special Purpose: Property such as bowling alleys, resorts, museums, etc.
- Land: Future development space or farmland.
- Residential: 1-4 unit non-owner occupied investment properties
Please note that Griffin Funding only offers commercial DSCR loans on residential 1-4 unit investment properties at this time. We do not lend to individuals or natural persons. We lend to 1-4 unit properties that are owned by an LLC.
It’s important to reiterate that commercial DSCR loans cannot be used for primary residences and second homes. Commercial DSCR loans must be used for business purposes only and the property must be owned by an LLC. Commercial DSCR loans are not for personal use.
Where Are South Carolina Commercial DSCR Loans Available?
Griffin Funding is proud to offer commercial DSCR loans across the state of South Carolina, including the following cities:
- Mount Pleasant
- Goose Creek
- Rock Hill
- Hilton Head Island
Note that this is not an exclusive list. If you are interested in securing a South Carolina commercial DSCR loan, please contact us to find out if we serve your area and get the application process started.
What Are the Advantages of SC Commercial DSCR Loans?
The benefits a DSCR loan provide are based on it being a no-income loan and how the DSCR is calculated:
- They generally have faster closing times.
- They are easier to qualify for because they don’t require proof of income though pay stubs and the like.
- Because of the easier qualifications borrowers have an easier time investing.
- There is no limit on the number of properties that can be invested in.
- Can be interest only loans.
- Able to qualify for large amounts up to $5,000,000
- Close in LLC (personal guarantees are still required)
- There is less paperwork required.
As you can see, this may be a worthwhile commercial real estate investment loan option to explore.
What Is the Required DSCR for Commercial Loans in South Carolina?
When underwriting a commercial DSCR loan in SC, banks and other lenders will typically look for a DSCR of 1.25 or higher, an indication that the loan is unlikely to become insolvent. The reasoning behind this is that a DSCR over 1.0 signals to the lender that the property is profitable enough to be able to cover loan payments.
That said, Griffin Funding strives to offer more flexible underwriting terms, so more borrowers have the opportunity to qualify for one of our loans. We can offer commercial DSCR loans in South Carolina with a ratio as low as .75 depending on the amount of cash reserves the borrower has available on hand.
In addition to DSCR, Griffin Funding requires a minimum down payment of 20% and a minimum credit score.
If you’re unsure whether you qualify, one of our knowledgeable loan specialists will be happy to walk you through the process.
How Is DSCR Calculated for Commercial Loans?
A DSCR loan is calculated using the gross rental income divided by the annual debt.
DSCR = Gross Rents / Annual Debt
First, you need to calculate Gross Rental Income. Gross Rent is determined by the signed long-term rental agreement with your tenant, short-term rental income or the estimated rent that the appraiser comes up with when doing the appraisal on the property.
Once you have the Gross Rent, divide that by the annual debt to get your DSCR.
For example, imagine you have a property that has a gross income of $570,000, mortgage debt of $500,000. To calculate your DSCR, you would take $570,000 and divide that by $500,000 to get a ratio of 1.14. In this case, the property makes about $1.14 cents for every $1 owed.
While this example shows a DSCR lower than the general standard accepted by many lenders, this borrower may qualify for a Griffin Funding loan.
Who Should Apply for a South Carolina DSCR Loan?
Are you wondering if a DSCR loan might be right for you? If you are a commercial real estate investor in South Carolina and are looking to expand your portfolio, consider if the following apply to you:
- You are having a difficult time qualifying for a traditional income-based loan.
- You are self-employed or have a hard time providing proof of income.
- You want to have quicker closing times or less paperwork.
- You want to invest in multiple properties in the state of South Carolina.
- You lack tax returns because you are a foreign investor.
- You wish to divide your business operations from your personal information.
If any of these parameters reflect your situation or you think a commercial DSCR loan may be an option for you, it may be worthwhile to submit an application. Griffin Funding has experienced, professional loan specialists in South Carolina who can help guide you through the process.
Apply for a Commercial DSCR Loan in SC Today
If you’re interested in a commercial DSCR loan in South Carolina, apply online today and let us see if this is the right loan program for you. With a highly knowledgeable team, streamlined lending process, and a commitment to white-glove, five-start customer service, we’re confident you’ll be glad you selected us as your lender.
If you have further questions about commercial DSCR loans in SC, you can reach us at (855) 394-8288.
If you aren’t in the market for commercial DSCR loans but are interested in residential real estate, we also provide DSCR loans for residential properties. These provide many of the same benefits as a commercial DSCR loan.