Debt Service Coverage Ratio (DSCR) Calculator
Calculate your ability to cover debt obligations with operating income.
What is a Debt Service Coverage Ratio?
The Debt Service Coverage Ratio (DSCR) is a critical financial metric used by lenders and investors to measure a firm's (or property's) ability to produce enough cash to cover its debt payments. In commercial real estate and business lending, it is the primary indicator of solvency and risk.
The DSCR Formula
DSCR = Net Operating Income (NOI) / Total Debt Service
- Net Operating Income (NOI): Your total annual revenue minus all necessary operating expenses (excluding taxes and interest).
- Total Debt Service: The total annual amount of principal and interest payments required on all existing and proposed loans.
How to Interpret the Result
Lenders use the following benchmarks to evaluate loan eligibility:
| DSCR Result | Meaning |
|---|---|
| Greater than 1.25 | Strong coverage; often the minimum requirement for commercial loans. |
| Equal to 1.00 | Break-even; the property generates just enough to pay the debt. |
| Less than 1.00 | Negative cash flow; the borrower must use outside funds to pay the debt. |
Practical Example
Imagine an apartment building generates $180,000 in Net Operating Income annually. The annual mortgage payments (principal and interest) total $120,000.
Calculation: $180,000 / $120,000 = 1.50 DSCR
In this scenario, the building generates 50% more income than is required to cover the debt, making it a low-risk investment for a bank.