Debt Service Coverage Ratio (DSCR) Calculator
Calculate the Debt Service Coverage Ratio (DSCR) from net operating income and total debt payments to see if cash flow covers debt obligations.
Frequently Asked Questions
What is the DSCR formula?
DSCR = Net Operating Income (NOI) ÷ Total Debt Service, where Total Debt Service = Annual Principal Repayment + Annual Interest Payments. It shows how many times over a business or property's operating income can cover its required debt payments for the year.
What counts as Net Operating Income for DSCR?
NOI is income from core operations before debt service: for a business, typically EBITDA or operating income; for real estate, rental income minus operating expenses (but before mortgage payments). It excludes financing costs, taxes, and non-operating items, since DSCR specifically measures whether operations generate enough cash to service debt.
What is a good DSCR?
A DSCR below 1.0 means operating income isn't enough to cover debt payments — a red flag. Most commercial lenders want at least 1.25, meaning income exceeds debt payments by 25%. SBA loans often accept 1.15+, while conservative lenders or riskier deals may require 1.35 or higher.
Why do lenders care so much about DSCR?
DSCR directly answers the question a lender cares about most: can this borrower's cash flow actually cover the loan payments, with some cushion for a downturn? Unlike a credit score or collateral value, DSCR is forward-looking and tied to the income the loan itself depends on, which is why it's a standard underwriting requirement for commercial and real estate loans.
How can a business improve its DSCR?
Increase net operating income (raise revenue, cut operating costs, improve margins), or reduce total debt service by refinancing to a lower rate, extending the loan term to lower payments, or paying down principal on other debt first to reduce overall obligations.
How is DSCR different from the interest coverage ratio?
Interest coverage ratio (EBIT ÷ Interest Expense) only measures the ability to cover interest payments. DSCR is stricter — it includes both interest AND scheduled principal repayment in the denominator, giving a more complete picture of whether cash flow can meet the full debt obligation, not just the interest portion.