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What is debt service coverage ratio (DSCR)?

Last updated May 2026 · Reviewed by David Chen
Quick Answer

Debt Service Coverage Ratio (DSCR) measures a businesss ability to pay debt. Calculate by dividing annual net operating income by annual debt payments. Lenders want 1.25 or higher (income exceeds debt by 25%). DSCR of 1.0 means you exactly break even. Below 1.0 means cash flow doesnt cover debt.

Key Details

  • Formula: Net Operating Income ÷ Annual Debt Payments
  • 1.25+: ideal for lenders
  • 1.0: exactly break even
  • Below 1.0: insufficient cash flow
  • 1.5+: strong borrower
  • Used heavily by SBA and bank lenders

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Answer by David Chen — Senior Business Funding Editor
12+ years in alternative lending. $200M+ underwritten.

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