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What Is DSCR?
Debt Service Coverage Ratio (DSCR) measures how many times your net operating income covers your annual debt payments. It's the primary metric lenders use to approve business loans and commercial real estate financing.
DSCR = Net Operating Income / Annual Debt Service
DSCR Benchmarks
| DSCR | Interpretation |
|---|---|
| ≥ 1.50 | Strong — easily qualifies most lenders |
| 1.25–1.49 | Acceptable — SBA and conventional standard |
| 1.00–1.24 | Marginal — limited lender options |
| < 1.00 | Below coverage — cash flow cannot service debt |
What Counts as NOI?
NOI = Revenue − Operating Expenses (excluding interest, taxes, depreciation, and amortization). For real estate, it's rental income minus vacancies and operating costs.
Maximum Loan from DSCR
Given a minimum DSCR requirement, the maximum annual debt service your cash flow supports is:
Max Debt Service = NOI / Minimum DSCR
Apply standard loan amortization to convert max debt service into a maximum loan principal at your rate and term.