About

The Debt Service Coverage Ratio (DSCR) is the primary benchmark lenders use to assess a borrower's ability to repay a loan. In commercial real estate and corporate finance, it measures the cash flow available to pay current debt obligations. Unlike personal Debt-to-Income ratios, DSCR looks strictly at the asset's or business's operating performance.

A DSCR of less than 1.0 means the entity is bleeding cash—it cannot cover its debt with its current income. A DSCR > 1.25 is typically the minimum requirement for securing a commercial mortgage. This calculator allows investors to stress-test their numbers to see if a deal is bankable before approaching a lender.

Formulas

DSCR is calculated by dividing Net Operating Income (NOI) by the Total Debt Service.

DSCR = Net Operating IncomePrincipal + Interest + Lease Payments

Reference Data

DSCR Value	Lender's Verdict	Financial Interpretation
< 1.00	High Risk (Rejected)	Negative Cash Flow. Business loses money paying debt.
1.00 - 1.15	Caution / Risky	Break-even. Very little room for error or vacancy.
1.15 - 1.25	Acceptable	Standard minimum for many aggressive lenders.
1.25 - 1.50	Good (Approved)	Standard Requirement for Commercial Loans.
> 1.50	Excellent	Strong Cash Flow. Favorable loan terms likely.

Frequently Asked Questions

NOI is the total revenue generated by the property or business minus all necessary operating expenses. NOTE: Operating expenses do NOT include debt service (mortgage payments), depreciation, or income taxes.

Generally, no, not from a traditional bank. A DSCR below 1.0 implies you need outside capital to make payments. However, 'hard money' lenders or bridge loans might finance a turnaround project if the projected future DSCR is high.

Yes. A higher DSCR indicates lower risk. Lenders often compete for high-DSCR projects, which can allow the borrower to negotiate lower interest rates or better amortization terms.