Debt yield is defined as annual net operating income divided by loan amount; in which lending context is it most commonly used?

• A. In traditional unsecured consumer lending
• B. In asset-backed lending to gauge return relative to debt
• C. In evaluating short-term working capital lines
• D. In calculating interest for credit cards

Answer: (B)

Debt yield is the measure of how much income the property generates per dollar of secured debt, calculated as annual net operating income divided by the loan amount. In asset-backed lending, especially commercial real estate, this provides a quick view of the income cushion supporting the debt—essentially, how much NOI backs each dollar of debt. It helps underwriters compare deals with different loan sizes or collateral values and assess risk relative to the debt secured by the asset. This concept isn’t used for unsecured consumer lending, short-term working capital lines, or credit card interest, where collateral and underwriting focus on borrower credit, liquidity, and different cash-flow dynamics rather than property NOI.