Discounting owner's compensation (and similar kind) add - backs

by a searcher from Babson College - F.W. Olin Graduate School

2 years ago

Hey all - I am currently under LOI and my loan file is in underwriting. I've been told by my bank that every owner comp add-back will be discounted to 70% of the whole. For example, if salary is $100k, they are only adding back $70k. I'm wondering how common this is and if I should consider reaching out to my backups? 

This is affecting the TTM DCR; all other DCRs even at discount look great.

2 likes
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15 comments

investor from Rensselaer Polytechnic Institute

Great post. From the comments on this thread, I can see that you've hit a topic and an experience that many share here. Keep at it and update us as you proceed. Good luck!

2 years ago | like reply | 1 like

searcher from Notre Dame de Namur University

I wouldn't use sellers salary for the add backs personally. Lenders discount out because it is seen as a necessary expense to the business. Every time I have approached a seller I do not add their salary back based on DCSR purposes for my self. Certain commissions or distributions can be added back, but you have to be very careful, because of situations like this. Underwriters are looking for why a deal may go south, and for these reasons they discount many items.

2 years ago | like reply | 2 likes

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