What is Commercial Loan Underwriting

Underwriting Is Where Deals Die — Or Get Saved

You gather your documents. You send them to your broker. You wait.

What happens between “documents sent” and “lender responds” is underwriting. Most borrowers have almost no visibility into this stage — and it’s exactly where deals can quietly fall apart without anyone being able to explain why.

Underwriting is where the gap between what a borrower thinks their deal looks like and what a lender actually sees gets exposed. AAI’s job is to close that gap before a lender ever has to open it.

Episode 4 of Advice from the Deal Room brought in Jay Cook, AAI Financial Group’s Vice President of Underwriting, to explain what happens to your documents after they arrive — and what makes the difference between a package that moves quickly and one that stalls.

What Does Underwriting Actually Mean?

Jay’s definition is simple: underwriting is the process of determining whether a deal fits a lender’s credit standards.

At AAI, it goes one step further. We don’t just check whether a deal fits — we build the story of the deal in the format a lender needs to see it. When the package arrives, their credit team can move it forward without multiple rounds of back-and-forth.

Think of it this way: every lender has an internal underwriter who writes a “credit memo” before a loan goes to committee for approval. Our goal is to hand them a credit memo that’s already written in their language. The faster they can say yes, the better the outcome for the borrower.

The Four Things Every Commercial Underwriter Examines

1. Collateral: Does the Asset Support the Loan?

Where is the property located? What type of asset is it? Does it generate income, and if so, is that income enough to cover the proposed debt payment?

Underwriters also evaluate current market value and how that value compares to the requested loan amount.

If the collateral does not produce direct income — such as an owner-occupied building — the analysis shifts to the operating company to determine whether the business’s cash flow can service the debt.

2. Borrowing Entities: Who Is on the Hook?

Is the borrower an LLC, corporation, trust, or individual? Are there multiple partners? What are the ownership percentages? Who will provide a personal guarantee?

Entity structure is more than paperwork. It determines which financial documents are required and whose financial profile the lender must evaluate before approving the loan.

3. Market Analysis: Is the Context Favorable?

Underwriters also evaluate the broader market surrounding the property.

What are the typical vacancy rates for this asset class? Who are the major employers in the area? How resilient is the local economy during downturns?

Jay reviews market data — often using CoStar — on every deal to answer these questions before a lender asks them.

4. Guarantors: The Deep Dive

This is the stage many borrowers underestimate.

Underwriters review three or more years of personal tax returns, a personal financial statement, and a schedule of real estate owned for each guarantor.

The goal isn’t judgment. It’s building a complete and accurate picture of the individuals behind the loan so the story presented to the lender reflects reality.

DSCR vs. Global DSCR — The Number That Actually Matters

Debt Service Coverage Ratio (DSCR) measures whether a property generates enough net income to cover the loan payment.

A DSCR of 1.25 means the property produces $1.25 in income for every $1 of debt payment. Most lenders require a minimum DSCR between 1.20 and 1.25.

Global DSCR looks at something much bigger — the borrower’s entire financial picture.

It includes:

• Income from every business, property, W-2, or 1099 source
• All debt payments, including commercial loans, mortgages, auto loans, and credit cards

For example, a property generating $150,000 in net operating income against a $100,000 annual debt payment has a DSCR of 1.50.

However, if the same borrower carries $200,000 in total annual debt across their portfolio and generates $220,000 in total income, their global DSCR is only 1.10 — barely above many lenders’ minimum threshold.

This is the gap global DSCR reveals.

A property can look strong on its own while the borrower’s overall financial picture is stretched. This is one of the most common reasons deals stall or require restructuring before reaching a lender’s desk.

What the Underwriting Write-Up Looks Like

After completing the analysis, Jay prepares a formal underwriting write-up summarizing the deal for the lender.

Depending on complexity, these reports often range from 15 pages to more than 70 pages.

The report typically includes:

Summary Page
Loan request, borrowing entity, property address, loan-to-value ratio, DSCR, guarantors, and a short narrative overview.

Collateral Section
Maps, photos, property data, income analysis, and operating company financials if the property is owner-occupied.

Market Analysis
Vacancy rates, demographic trends, and regional economic factors.

Guarantor Section
Three-year tax return spreads, full business and real estate portfolio review, and global cash-flow analysis.

The goal is simple: give the lender everything they need to move the deal forward without additional questions. When that happens, decisions come faster and deals close more reliably.

Common Pitfalls We Catch Before the Lender Does

• Undisclosed IRS obligations — even small balances can create issues; resolving them before applying is critical.
• Credit surprises — late payments or disputes that borrowers forget to disclose but appear during the lender’s credit pull.
• Underestimated ownership costs — vacancy reserves, property management fees, capital expenditures, and insurance.
• Insurance costs — policies are taking longer to obtain and premiums have risen significantly.
• Liquidity gaps — funds held in LLCs or retirement accounts may not fully count toward required liquidity if they aren’t clearly disclosed.

Frequently Asked Questions

How Long Does Commercial Underwriting Take?

Internal pre-underwriting typically takes 3–7 business days once complete documents are received.

After submission to a lender:

• Conventional bank underwriting often takes 3–4 weeks
• SBA underwriting typically runs 4–8 weeks depending on the lender and program
• Agency and HUD financing can take 60–90 days or longer

The single biggest variable is document completeness on day one.

What Documents Are Needed for Underwriting?

At minimum, most deals require:

• Two to three years of personal tax returns for all guarantors
• A personal financial statement
• A schedule of real estate owned
• Two to three years of business tax returns for any involved company
• Three months of personal and business bank statements
• Property financials if the asset produces income

Additional documents depend on the specific transaction.

What’s the Difference Between DSCR and Global DSCR?

DSCR evaluates one property’s income compared to that property’s loan payment.

Global DSCR evaluates the borrower’s entire financial picture — all income sources minus all personal and business debt obligations.

Lenders evaluate both measurements when reviewing a loan.

Will Underwriting Pull My Credit?

Yes. Commercial underwriting typically involves a credit inquiry, which is a hard pull.

However, commercial lenders are generally less focused on the credit score itself and more concerned with what appears in the report, such as late payments, judgments, or IRS liens.

Multiple inquiries within a short time frame are often treated as a single inquiry by credit scoring models, though the exact impact can vary.

Deal Room Takeaways

Underwriting is where deals are validated, structured, and prepared for lender approval. When a deal is properly pre-underwritten before reaching a lender, decisions come faster and the likelihood of closing increases significantly.

Get Your Deal Pre-Underwritten Before You Talk to a Lender

A strong underwriting package bridges the gap between how a borrower sees their deal and how a lender evaluates it — and closing that gap early is what keeps deals moving forward.

Working on a deal and want a second set of eyes before you go to a lender? That’s exactly what we do. No cost for the conversation. Contact us.