Financial Analysis Expert Witness On Lender Characteristics

In Financing Your Indoor Waterpark Resort in 2010, finance expert witness David J. Sangree, MAI, CPA, ISHC, and Eric B. Hansen, AIA, ISHC write:

Lender Characteristics If a lender is willing to initially consider your project, then there are several attributes that, if present, will help generate a potential positive lending decision.

Familiarity How well does your lender know the market in which your resort is operating?
How knowledgeable in hospitality and waterpark operations is your lender?

Understanding that Cash Flow is King Lenders require the property’s projected cash flow to be sufficient to easily cover the projected debt payments. Cash flow projections must be clearly defined and have reasonable bases. The lender will scrutinize the financial projections and pro-forma.

Lenders utilize the NOI to determine the debt coverage ratio for the loan. Lenders we interviewed require debt coverage ratios typically from 1.25 to 1.5. During the course of the loan, if the ratio is surpassed, then they could call for an infusion of cash to bring the loan amount back within terms of the note. The ability to do this on the developer’s part confirms the strength of the developer.

In general, the willingness of the lender to be educated on the project needs to be present from the beginning.