Debt Service Coverage Ratio (DSCR)
It shows whether the business earns enough to comfortably pay its loan bills.
Formal definition
DSCR equals net operating income divided by total annual debt service, indicating whether operating cash flow can cover loan payments.
Why it matters
Lenders often decline deals below about 1.25× because cash flow may not survive a slow month or rate increase.
Where you see it
- Commercial mortgage underwriting
- SBA 7(a) and 504 loan applications
- Real estate investment memos
- Credit committee packages
- MBA real estate finance classes
Worked example
- A property produces
- Mortgage principal and interest payments total $96,000 per year.
- DSCR =
- Interpretation: NOI covers debt service with a 25% cushion.
How Business metrics calculates it
NOI ÷ Annual debt service.
The range we use for status labels
On Business metrics, the status band for this KPI is roughly 1.25 to 99. Higher values are generally healthier in this band. Your niche can sit outside it honestly — the label is a prompt to read the coaching, not a certificate.
Where people fool themselves
DSCR using revenue instead of NOI is how people talk themselves into a loan they cannot service. Interest is not the only debt — principal counts in debt service for this ratio as we implement it (annual debt service, not interest alone).
Run it on your own numbers: Seeking a Loan.