Which set of financing covenants is commonly used by lenders in CRE loans?

• A. DSCR, LTV, DSCR, LTV, debt yield, minimum net worth, and reserves
• B. DSCR
• C. LTV
• D. DSCR, LTV, debt yield, minimum net worth, and reserves

Answer: (C)

In commercial real estate lending, the most universal control is the loan-to-value (LTV) ratio, which ties the loan amount directly to the property’s value. Lenders want to ensure they’re not over-leveraged relative to the collateral backing the loan, so they set a maximum LTV. This covenant is straightforward to monitor—periodic appraisals tell you whether the loan still fits within the approved percentage of value, and if property values drop or the loan balance grows, the covenant comes under pressure and prompts action to protect the lender.

Other financial metrics like DSCR (debt service coverage ratio) or debt yield are important and are used in many deals to assess income relative to debt obligations or overall risk profile. However, they’re not as universally applied as a simple LTV cap in the typical CRE loan, and some deals rely on LTV centric covenants as the primary protective measure. That’s why the single, most common covenant described here is the LTV limit.