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What ratios are used in lease underwriting?


Lease underwriting credit analysis includes financial ratios to assess the transaction collateral credit quality.  Whereas equipment lease credit criteria are commonly limited to loan-to-value, traditional commercial real estate financing generally also considers net operating income and debt-service coverage:

  • Loan–to-value (LTV) – The maximum amount an institution is prepared to advance as a percentage of the value of the eligible collateral, it being the ratio of the loan amount divided by the collateral’s value;
  • Net operating income (NOI) – The overall performance of a firm’s operations before considering nonoperating revenue and expenses, extraordinary items and income taxes; and
  • Debt-service coverage ratio (DSCR) – A ratio of net operating income to annual debt service, which indicates how many times a firm is able to meet all of its fixed charges from net operating income.
IFC Loan-to-Value Ratios in OECD Countries and Emerging Markets
Emerging Markets
Type of Collateral OECD Friendly/Reformed Difficult/Unreformed
Immovable Property ≤ 90% ≤ 80% Cities: 60%-80%; rural: 30%-60%
Movable Property
Vehicles ≤ 100% 70%-100% 60%-85%
Equipment ≤ 80% ≤ 80% 60%-80%; secondary collateral
Accounts Receivable ≤ 80% ≤ 50% Secondary collateral
Inventory ≤ 50% Secondary collateral Secondary collateral
Source: International Finance Corporation
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