Self storage refinancing happens for many reasons. Not all owners are aware that lenders will spend time focusing on their personal ability to cover liabilities. Lenders call this underwriting the “global cash flow.”
Global cash flow is a borrower’s net cash flow from all sources of income, both personal and business. Lenders include income from employment, dividends, businesses and real estate. As part of their due diligence, they will require both a personal financial statement and multiple years of tax returns to document all sources of income. To document the expense side of the global cash flow, lenders will again use tax returns to capture all business expenses, and will also run a credit report to capture any business and personal debts.
Much of the global cash flow underwriting process will be spent understanding other real estate holdings and their financial implications. Lenders require a schedule of real estate owned. This schedule should include detailed cash flows and a summary of debt terms for of all the properties in the portfolio. The lender will underwrite each property focusing on the ability of its cash flow to cover its respective debt service. The goal is to determine total cash obligations and determine that a positive global cash flow exists. The analysis will include a review net worth and liquidity to determine what capacity is left to service the prospective loan.
Lenders look at global cash flow to ensure the borrower has the resources to pay on all obligations and will not bring down its freshly minted loan on the property. In addition, it’s important that a borrower has some liquidity, even after the proposed transaction is completed, to ensure there are funds available in the event an unforeseen occurrence resulting in a capital call.