Debt Service Coverage Ratio Calculator
Calculate your ability to service debt obligations
DSCR Formulas
Understanding DSCR
Debt Service Coverage Ratio (DSCR) measures the cash flow available to pay debt obligations. It divides net operating income by total debt service (principal + interest). A DSCR of 1.5 means income is 50% higher than required debt payments.
Lenders use DSCR to assess loan risk. Higher DSCR indicates more cushion for the borrower and lower risk for the lender. Most commercial real estate loans require DSCR of 1.20-1.35 minimum; some require 1.50+.
DSCR differs from debt-to-income used for personal loans. DSCR uses business net operating income, not gross income. It's the primary metric for commercial real estate, business acquisitions, and corporate lending.
DSCR Thresholds
DSCR > 1.50
Strong coverage. Best rates and terms. Significant cushion for income variability.
DSCR 1.25-1.50
Adequate coverage. Standard loan qualification. Moderate cushion.
DSCR 1.0-1.25
Marginal coverage. May qualify with other strong factors. Limited cushion.
DSCR < 1.0
Insufficient coverage. Cash flow doesn't cover debt. Will not qualify.
DSCR Requirements by Loan Type
| Loan Type | Minimum DSCR | Preferred DSCR | Notes |
|---|---|---|---|
| CRE Stabilized | 1.20-1.25 | 1.35+ | Standard commercial RE |
| CRE Bridge | 1.00-1.10 | 1.20+ | Short-term, higher rates |
| SBA 7(a) | 1.15-1.25 | 1.35+ | Small business loans |
| Business Acquisition | 1.20-1.30 | 1.40+ | Proven cash flow |
| Construction | 1.25+ | 1.50+ | Based on projections |
Improving DSCR
Increase NOI
Raise rents, reduce vacancies, cut operating expenses. Higher NOI improves DSCR directly.
Larger Down Payment
More equity means smaller loan and lower debt service, improving DSCR.
Longer Amortization
Extending loan term reduces annual principal payments, improving DSCR.
Lower Interest Rate
Shop for better rates or buy down the rate. Lower interest = lower debt service.
Frequently Asked Questions
What's included in Net Operating Income?
NOI = Gross Income - Operating Expenses. Include: rental income, other income. Exclude from expenses: debt service, income taxes, depreciation, capital expenditures. NOI is before financing costs.
What's included in debt service?
All principal and interest payments on the debt being analyzed. For refinancing, use the new loan's projected payments. Some lenders include all debt; others focus on the specific loan.
Why do lenders want DSCR above 1.0?
DSCR of exactly 1.0 means income just covers debt—no cushion. Lenders want cushion for vacancy, expense increases, or income drops. 1.25 DSCR means 25% cushion.
Can I qualify with low DSCR?
Maybe. Strong compensating factors like significant cash reserves, additional collateral, guarantor strength, or interest reserves can offset marginal DSCR. Expect higher rates or more stringent terms.
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