COMMERCIAL LOAN STRUCTURING
A financeable structure shows where the money comes from, where it goes and how the lender gets repaid.
Commercial loan structuring is the process of connecting the requested debt to the transaction’s actual economics. A strong structure reconciles purchase price or current value, existing debt, sponsor equity, project costs, reserves, cash flow, requested proceeds and the exit strategy.
Before asking a lender for a rate, the financing request should answer a more basic question: does the proposed capital stack make sense for the collateral, cash flow, sponsor and business plan?
| Transaction | Core structuring questions | Common package focus |
|---|
| Acquisition | What is the purchase price, requested loan and sponsor equity? | Purchase contract, property economics, liquidity, sources & uses. |
| Refinance | What is being paid off and what additional proceeds are requested? | Payoff, value, NOI or business cash flow, cash-out use, maturity. |
| Bridge | Why is short-term capital needed and what event repays the bridge? | Current condition, leverage, reserves, execution plan, exit. |
| Construction | How do land basis, hard/soft costs, equity and debt fit together? | Budget, sources & uses, contingency, timeline, sponsor experience. |
| Value-Add | How much capital is required before the property stabilizes? | Renovation scope, current NOI, projected NOI, lease-up, reserves. |
| Owner-User | How does the operating business support the real estate debt? | Business financials, property use, liquidity, ownership, repayment capacity. |
Example 1: acquisition structure
A property is being purchased for $4,000,000 and the sponsor requests a $2,600,000 loan. The structure should not stop at “65% of purchase price.” It should show the sponsor’s cash equity, closing costs, immediate capital needs, any reserve requirement and how much liquidity remains after closing.
Example 2: commercial refinance with cash-out
A property has an existing payoff of $1,800,000 and the sponsor requests a $3,000,000 refinance. The package should separate payoff, closing costs, reserves and the actual cash-out amount. The use of the additional proceeds should be documented, while current value and property or business cash flow support the requested leverage and debt service.
Example 3: bridge-to-stabilization
A property has temporary vacancy or requires renovation before permanent financing is practical. The bridge structure should identify today’s value and cash flow, the capital required during the term, sponsor liquidity, interest or operating reserves if applicable, the stabilization milestones and the refinance or sale assumptions supporting repayment.
Example 4: construction capital stack
A construction request should reconcile land value or acquisition cost, hard costs, soft costs, contingency, interest or operating reserves, sponsor equity already invested and remaining equity to be contributed. Lenders may evaluate both leverage against cost and leverage against the completed asset, so the sources and uses should remain internally consistent.
Sources equal usesThe requested debt plus sponsor equity and other legitimate capital sources should reconcile to the full transaction cost.
Leverage uses the right denominatorPurchase price, current value, total project cost and completed value are not interchangeable.
Cash-out is visibleDo not hide additional proceeds inside a total refinance request; separate and explain them.
Reserves are intentionalInterest, operating, tax, insurance or construction reserves should be tied to an identified need.
Exit matches the termA short-term bridge needs a realistic event that can occur within the proposed loan term.
Sponsor liquidity survives closingThe structure should consider post-closing liquidity, not only the equity required to get to closing.
Commercial loan underwriting guidelines →LTV vs. LTC →Document checklist →Start the Blueprint Deal Screen →
