Loan sizing is the process a lender uses to determine the maximum amount it is willing to lend against a property, based on a combination of underwriting metrics rather than the borrower's requested amount alone. The two most common constraints are loan-to-value, which caps the loan as a percentage of the property's appraised value, and debt service coverage ratio, which ensures projected net operating income exceeds required debt payments by a specified margin. Lenders typically size a loan to the more conservative of these two tests.
Other factors, including debt yield, market conditions, property type, and the borrower's track record, can further influence the final loan amount and terms. For sponsors, loan sizing directly shapes how much leverage a deal can carry and, by extension, how much equity investors need to contribute at closing. A property with strong, stable income and a conservative valuation will generally size to a larger loan than one with volatile cash flow or an aggressive appraisal, which is why understanding a lender's sizing constraints early in a deal is a key part of structuring the capital stack.
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