Calculator
DSCR Calculator: Debt Service Coverage Ratio
DSCR (debt service coverage ratio) is net operating income divided by annual debt service. A DSCR of 1.25x means the property or business earns $1.25 for every $1.00 of loan payments. Lenders commonly require 1.20x to 1.35x depending on asset type and loan program.
Formula
How underwriters use it
DSCR is the first test most commercial and small-business lenders run, because it shows how much cash flow cushion sits between operating income and the loan payment. Below 1.00x the asset cannot service its debt from operations.
Use trailing twelve month NOI or normalized EBITDA, not projections, unless the lender has agreed to underwrite stabilized income. For an operating business, lenders often use EBITDA less maintenance capex and owner compensation adjustments.
Frequently asked questions
What is a good DSCR?
Most lenders look for at least 1.20x to 1.25x on stabilized commercial real estate and small-business loans, with riskier assets such as hotels or special-purpose properties often needing 1.35x or more. Higher is safer, and a DSCR below 1.00x means operating income does not cover the loan payment.
How do I increase DSCR?
Increase NOI (raise rents, cut expenses, fill vacancy) or reduce debt service (borrow less, extend amortization, negotiate a lower rate or an interest-only period). Lenders size loans so the DSCR lands at their minimum, so the loan amount usually moves before the ratio does.
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