DSCR Calculator
Calculate Debt Service Coverage Ratio. Understand if your business can support debt obligations.
DSCR Calculator
Debt Service Coverage Ratio analysis for business loans
Sum of all annual loan payments
Cash flow is insufficient to cover debt payments
Acceptable, but limited safety margin
Strong cash flow relative to debt service
DSCR Definition: The ratio of annual net operating income (or SDE) to annual debt service obligations. A DSCR of 1.25 means you have $1.25 in earnings for every $1.00 of debt service.
Understanding DSCR
What is DSCR?
Debt Service Coverage Ratio (DSCR) measures your business's ability to service its debt with operating income. It's calculated by dividing net operating income by total debt service.
Formula: DSCR = Net Operating Income ÷ Total Debt Service
Example: If your business has $100,000 in annual operating income and $75,000 in annual debt service (principal + interest), your DSCR would be 1.33x.
DSCR > 1.25
Strong Cashflow
Business generates 25%+ more income than debt service obligations. Lenders view this favorably.
DSCR = 1.0 - 1.25
Adequate Cashflow
Business generates enough to cover debt, but little cushion. May require higher down payment.
DSCR < 1.0
Insufficient Cashflow
Business cannot cover debt service from operating income. Most lenders will not finance.
Lender Requirements
SBA 7(a) Loans
Typically require minimum DSCR of 1.25x
Commercial Loans
Often require 1.5x+ depending on industry risk
Refinancing
Most lenders require 1.2x+ to refinance
What's Included in Debt Service?
Total debt service includes all loan payments:
- Principal and interest payments on acquisition loan
- Existing business debt service
- Equipment loans and lines of credit
- Lease obligations (for accounting purposes)
Improving Your DSCR: To improve DSCR, focus on increasing net operating income (growing revenue, reducing expenses) or reducing debt obligations (larger down payment, shorter loan term, or paying off existing debt).