Debt-Service Coverage Ratio is one of the most important numbers in commercial lending. Here's what it means.
If you've explored commercial financing, you've likely seen the term DSCR — Debt-Service Coverage Ratio. It's one of the first things many lenders calculate.
The formula
DSCR = net operating income ÷ total debt service. In plain terms, it measures whether your business generates enough income to comfortably cover its debt payments.
What the number means
- DSCR above 1.25 — generally viewed as healthy; income comfortably covers debt.
- DSCR around 1.0 — income barely covers debt; lenders see higher risk.
- DSCR below 1.0 — income doesn't fully cover debt; approval becomes difficult.
How to improve it
Increase net operating income, reduce existing debt service, or choose a loan structure with lower payments. An advisor can help you present your numbers in the strongest, most accurate light.
We'll help you understand where your DSCR stands and match you with lenders whose thresholds fit your profile.