What Is a DSCR Business Loan?

A DSCR business loan is a type of investment property loan that uses the debt service coverage ratio (DSCR) to determine a borrower’s ability to fulfill their mortgage obligations. The DSCR is a metric that compares the property’s rental income to its mortgage obligations, giving us a decimal that tells us whether it generates enough cash flow to cover its debts. 

A DSCR greater than 1 indicates that the property generates enough income to cover its mortgage, while a DSCR of 1 signifies the property’s break-even point. A DSCR lower than 1 means the property doesn’t generate enough rental income to fulfill its debt obligations, but lenders like Griffin Funding still accept low DSCRs in some cases.

Advantages of DSCR Loans in Rhode Island

DSCR loans in Rhode Island are often easier to qualify for because they focus on the property’s ability to generate income rather than the borrower’s financial situation. Just like all mortgage programs, there are pros and cons of DSCR loans. A few benefits of these loans include the following: 

  • Easy qualifications: The primary metric for DSCR loan eligibility is the DSCR. The absence of personal financial scrutiny, such as income or job history, makes these loans more accessible to all types of borrowers. 
  • Streamlined approval: Since there’s less documentation required for these loans, they typically result in quicker closing times. 
  • Flexible cash access: DSCR loans in Rhode Island come with an unlimited cash-out option, enabling borrowers to readily access funds for expenditures like property maintenance. 
  • Portfolio expansion: Unlike traditional loans that limit a borrower based on their existing debts, DSCR loans don’t cap the number of properties you can invest in. 

Other advantages of Rhode Island DSCR loans include the following: 

  • Loan amounts up to $5,000,000 (minimum loan amounts start at $100,000)
  • As little as 20% down payments
  • Credit scores as low as 620 accepted
  • DSCRs as low as .75 (DSCRs below .75 will be considered on an exception basis)
  • Long-term and short-term rentals eligible, including Airbnbs
  • For 1 – 4 unit residential investment properties

How to Apply for a DSCR Business Purpose Loan in Rhode Island

Griffin Funding streamlines the process for applying for DSCR commercial loans in Rhode Island. Here’s an overview of how to apply and what happens after:

  • Apply: Fill out the loan application online or by calling us today. 
  • Calculate DSCR: Lenders calculate your DSCR, but you can use a DSCR calculator to determine where your rental property stands. The DSCR lender in Rhode Island will use the rent schedule to determine the property’s income. 
  • Lock in your interest rate: Once your loan is approved, you’ll receive an interest rate and an offer to lock it in for a set period of time. 
  • Loan is approved: Once we’ve verified all the necessary information and determined the approval status, we’ll reach out to let you know.
  • Loan is funded: If your loan application is approved, we’ll quickly deposit the loan into your account.

Work With a Qualified DSCR Lender in Rhode Island

Rhode Island DSCR business loans are tailored specifically for investors and prioritize the income generated by the property over traditional borrower metrics, ensuring a tailored lending experience. 

When considering DSCR loans in the Ocean State, choose Griffin Funding. We have a rich history of dedication to client success, offering financing and guidance throughout your investment journey. Align with a lender who understands your needs and can provide the resources you need to purchase rental property. Apply for a DSCR loan with Griffin Funding today. 

Frequently Asked Questions: Rhode Island DSCR Business Loans

How do I qualify for a DSCR loan in Rhode Island?

Qualification requirements vary by lender. However, the most significant metric lenders use to determine eligibility is the debt service coverage ratio. Most lenders like to see a DSCR above 1 because this number indicates your property generates enough income to cover its debt obligations while also leaving you with enough of a buffer to cover unexpected costs associated with a rental property. 

Your lender will also ask for documentation, which may include rent rolls, lease agreements, property tax assessments, insurance, and other documents that can prove the property’s income and expenses. If the property isn’t currently being rented, we’ll determine the fair market rent to determine your DSCR. 

Additionally, even though the primary focus is on the property’s rental income, lenders will still conduct a credit check to ensure your financial responsibility. Griffin Funding allows for credit scores as low as 620. However, keep in mind that the lower your DSCR and credit score, the less favorable your terms may be, which means potentially higher DSCR loan down payment requirements and interest rates. 

What is a good DSCR to have for a commercial loan?

Lenders typically like to see a ratio of 1.2 or higher to be eligible for a DSCR business purpose loan in Rhode Island. This number indicates that the property generates more than enough income to cover its mortgage payments. The higher the DSCR, the more comfortable lenders are with the perceived risk. 

A DSCR below 1 indicates that the property’s rental income doesn’t generate enough income to cover its debt obligations, which may indicate a high risk of default. Like Griffin Funding, some DSCR lenders in Rhode Island may still accept lower DSCRs. However, they implement certain safeguards to mitigate risks, such as higher interest rates.

How long does it take to get a DSCR business loan in Rhode Island?

How long it takes to get a DSCR business loan in Rhode Island varies based on various factors, such as the lender’s processes, the complexity of the loan request, and how quickly the borrower provides the necessary documentation.

Griffin Funding will help streamline the process as much as possible and aim to complete the loan process in 30 days or less.