Bankers use this ratio to gauge the ability of a business to generate the necessary amount of cash flow to repay the loan. Bankers have learned the hard way that despite the importance of collateral, Debt Service Coverage determines the fate of the loan. The last reason for increased interest in Owner Occupied loan involves banking regulations and transaction costs. Earlier this year, banking regulators relaxed the rules for Owner Occupied loans under 1,000,000. Banks are no longer required to order a full appraisal.
Transaction costs are consequently lower.
Eliminating the appraisal requirement clearly allows a less expensive and faster loan settlement for the borrower. Owner Occupied financing has returned and there still appears to be real estate opportunities in this area from the Great Market Adjustment. For small and medium-sized businesses, the decision to seek Owner Occupied financing is a significant business decision. The economic consequences of default are both serious and often terminal. The owner should fully evaluate his options including the counsel of his attorney and accountant.