What Is a DSCR Business Purpose Loan?
A debt service coverage ratio (DSCR) loan is a type of Non-QM loan designed for real estate investors and business owners who want to qualify for commercial financing based on the property’s rental income rather than personal income. These commercial loans enable investors to purchase and refinance rental properties using alternative methods.
Specially designed for flexibility, DSCR loans in Indiana consider the debt service coverage ratio — a financial measure of the income generated by the property compared to the property’s debt — as the primary lending criteria.
These loans are ideal for self-employed borrowers, business owners, and investors whose personal income might not meet traditional lending standards. Business owners considering purchasing property for their businesses can also use DSCR loans as an alternative path to secure financing based on the business’s revenue rather than the owner’s personal income.
However, while these loans provide flexibility and less stringent lending requirements, they’re not right for every investor. Instead, Indiana DSCR loans are best suited for borrowers with strong cash flow from their rental income from investment properties to secure financing.
Key Benefits of DSCR Business Loans in Indiana
DSCR loans in Indiana are based on the cash flow and rental income of an investment property rather than a specific borrower’s personal income. Because business owners, investors, and the self-employed tend to take deductions on their tax returns every year, they may not have enough reported income to qualify for traditional investment property loans.
By emphasizing the debt service coverage ratio over personal income, lenders can evaluate the viability of the investment and prioritize the property’s earning potential. Other benefits of DSCR loans in Indiana include:
- No limit on property amount: Indiana DSCR business loans don’t limit the number of properties you can finance with the loan. Instead, you can broaden your investment portfolio and take advantage of several investment avenues.
- Quicker closing times: Since DSCR loans don’t require an extensive review of a borrower’s personal income or job history and instead focus on a simple calculator of the property’s potential income, the underwriting process is much more streamlined.
- As little as 20% down payments: DSCR loans may offer lower down payments than traditional loans for investment properties. The exact down payment required will depend on various factors like your DSCR, credit score, and lender policies.
- Variety of property types: DSCR loans can be used for short- and long-term investment properties. In addition, they can be used to purchase commercial or residential properties. However, keep in mind that these loans are not designed for residential primary residences. They’re for business purposes only. DSCR BPL loans are best suited for 1-4 unit residential investment properties.
- Large loan amounts: DSCR loans can offer significant financing, with loan amounts of up to $5,000,000, depending on the lender’s guidelines and the property’s projected income. Minimum loan amount starts at $100,000.
Indiana DSCR Loan Requirements
The main requirement of Indiana DSCR loans is the DSCR itself. Lenders typically like to see a DSCR of at least 1.25. However, some lenders may accept a ratio as low as 1, indicating that an investment property generates enough rental income or cash flow to repay the debt obligation.
Lenders will calculate your DSCR for you, but you should calculate your own before applying for the loan to ensure you’ll qualify with a particular lender based on their criteria. Griffin Funding allows for DSCRs as low as 0.75. However, low ratios typically translate into higher interest rates and down payment requirements. In addition, you may be required to have a certain amount of reserves.
Another key Indiana DSCR loan requirement is your credit score. Lenders determine your creditworthiness by reviewing your credit history to ensure you have a good record of repaying your debts on time. Typically, lenders like to see a credit score between 620 to 680 or higher. Keep in mind that the higher your credit score, the better your interest rate and loan terms will be.
Additionally, lenders have their own down payment requirements. You can expect to make a DSCR loan down payment between 20-25%, depending on factors like the lender’s policies, your credit score, and your DSCR.
Work With the Best DSCR Lender in Indiana
DSCR loans in Indiana offer a flexible financing option for investors and business owners. Focusing on the income generated by a property instead of personal income creates a more accessible method for securing financing.
Griffin Funding is a premier Indiana DSCR lender that offers mortgages tailored directly to your needs. Contact us today to get a mortgage or learn if you qualify for a DSCR commercial loan in Indiana.
Frequently Asked Questions: Indiana DSCR Business Loans
What is the minimum credit score to get a DSCR loan in Indiana?
The minimum credit score to get a DSCR loan in Indiana is 620. However, every lender has their own set of criteria. Some may require higher credit scores, depending on their policies. Before applying for a loan, we suggest doing your research because credit score can affect your eligibility, interest rate, and loan amount.
What is a good DSCR ratio in Indiana?
Most DSCR lenders in Indiana require a DSCR of 1.25 to qualify for the loan. However, Griffin Funding allows DSCRs as low as 0.75. Keep in mind that the lower your DSCR, the less favorable your terms.
How do I apply for a DSCR business loan in Indiana?
Applying for a DSCR business loan in Indiana with Griffin Funding is easy. We offer a streamlined process that aims to close your loan in 30 days or less, starting with a discovery call.
During the discovery call, we’ll discuss your needs and determine whether a DSCR loan is right for you. Then, we’ll guide you through the process. When you’re ready to apply, you can complete an online application or go through it with us on the phone.
Then, we’ll review the information and documentation you provided us in the application before issuing approval. Our main goal is to determine that you can repay the mortgage based on the rental property’s income.
Once you’re approved, we’ll schedule a date for closing to finalize the loan.