Calculate your DSCR to see if your business generates enough income to cover its debt payments. Essential for loan applications and financial health monitoring.
Total business revenue
Rent, payroll, utilities, etc.
Total loan principal per year
Total loan interest per year
DSCR
2.78x
Strong coverage
Net Operating Income
$150,000
Total Debt Service
$54,000
Excess Cash
$96,000
after debt service
SBA Loans
Min DSCR: 1.15x
Small Business Administration typically requires 1.15x minimum DSCR
Conventional Bank
Min DSCR: 1.25x
Most commercial banks require at least 1.25x DSCR for approval
Conservative Lenders
Min DSCR: 1.5x
Risk-averse or large loan lenders often target 1.50x or higher
Monthly NOI
$12,500
available per month
Monthly Debt Service
$4,500
principal + interest
Monthly Surplus/Deficit
$8,000
cushion after debt payments
The Debt Service Coverage Ratio (DSCR) measures your ability to pay debt obligations from operating income. It is calculated by dividing Net Operating Income by Total Debt Service (principal + interest payments). A DSCR of 1.0 means you barely cover your debt; lenders typically want 1.25 or higher as a safety margin.
Most lenders require a minimum DSCR of 1.20 to 1.25, meaning your net operating income is 20-25% higher than your debt payments. SBA loans typically require 1.15-1.25. Commercial real estate loans may require 1.25-1.50. Higher DSCR gives you better loan terms.
Net Operating Income (NOI) is your total revenue minus operating expenses, excluding interest payments, taxes, depreciation, and amortization. It represents the cash your business generates from operations before debt service.
A DSCR below 1.0 means your business does not generate enough income to cover its debt payments. You are effectively losing money on debt service. Options include increasing revenue, cutting expenses, refinancing to lower payments, or paying down debt to reduce the obligation.
You can improve DSCR by increasing net operating income (raise prices, add revenue streams, cut operating costs) or by reducing debt service (refinance for lower rates, extend loan terms, pay down principal). Lenders want to see a clear path to DSCR improvement.
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