Mixed use properties are developments that integrate multiple business types into one property, in contrast, single purposes properties are developments that serve only one business type. Special purpose properties refer to developments that are designed and built to limit the properties for specific use only. For example, a building that has professional offices on the ground floors and a hotel on the upper floors would be considered as a mixed-use property, an office building would be classified as a single use property while a church would be described as a special use property.
Interest Rate is the amount charged as a percentage of the loan for the use of the lender’s funds. In our loan agreements, interest rate is subject to change from time to time based on changes in an independent index which is generally the Prime Rate as determined by the Federal Reserve and quoted in the Wall Street Journal.
Term is the period over which the borrower and lender have the money may be borrowed. Prior to the end of term, the loan should either be repaid or renegotiated for another term.
Covenants are formal agreements between the borrower and the lender and are outlined in the Loan Agreement. They indicate that certain activities must or must not be carried out. Loan documents may state the limits to which the borrower can further borrow. Other covenants include: Debt Service Coverage Ratio; Global Debt Service Coverage Ratio; Debt Yield; Post Closing Liquidity; Financial Statement Reporting.
Payment Due Date are the dates upon which the borrower has agreed to make interest and/or principal and interest payments.
Loan Maturity is the date upon which all principal and all remaining interest is due to be paid.
DSCR stands for Debt Service Coverage Ratio which measures a borrower’s capacity to cover its loan payments using the cash flow generated from its business operations. It is calculated by dividing Earnings Before Interest, Depreciation and Amortization over the total of the loan payments for a certain period. At a ratio of 1.0x the borrower will be generating just enough cash flow to cover its loan payments for the year. This is included as a covenant in the loan agreements entered by AVANA with its borrowers. In underwriting, we always want a DSCR above the 1.0x ratio; typically, at 1.20x or greater. At that minimum level, the borrower would have generated 20% more in cash flow than what is needed to make its loan payments. For example, if the business generated $150,000 in cash flow for the year and its debt payments totaled $125,000, the DSCR would be 1.20x ($150,000/$125,000).
What is AVANA Capital’s typical payment date and when is it considered late?
Typical payment date is every 1st of the month and it will be considered late after the 10th of the month.
How is late payment assessed?
It is assessed as a percentage of the loan subject to the loan agreement. It is typically 5%.
What is the time-period for considering loan in default?
Payment default is when it is 30 days late.
How does default interest calculated?
Rate of the loan plus 500 basis points but not to exceed the maximum rate allowed in the State of Arizona.