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Calculate your Debt Service Coverage Ratio (DSCR) for loan qualification. See if your NOI covers debt payments and meets lender requirements.
DSCR is a financial metric that measures a property's or business's ability to cover its debt payments from net operating income. A DSCR above 1.0 means income exceeds debt obligations.
Total revenue before expenses
Taxes, insurance, maintenance, etc.
Total annual loan payments (P+I)
Lender requirement (typically 1.20-1.35)
At 1.25x DSCR
Of gross income
| Gross Income | $120,000.00 |
| - Operating Expenses | -$40,000.00 |
| = Net Operating Income | $80,000.00 |
| - Debt Service | -$50,000.00 |
| = Cash Flow After Debt | $30,000.00 |
| Loan Type | Min DSCR |
|---|---|
| SBA Loans | 1.15 - 1.25x |
| Conventional Commercial | 1.20 - 1.35x |
| CMBS Loans | 1.25 - 1.40x |
| Investment Property (DSCR) | 1.00 - 1.25x |
| Multifamily | 1.20 - 1.30x |
Tip: If your DSCR is below requirements, consider a larger down payment, longer loan term, lower interest rate, or ways to increase NOI before applying.
Formula
DSCR = Net Operating Income (NOI) ÷ Total Annual Debt ServiceNOI = Gross Income − Operating Expenses (excludes debt payments and depreciation)
Debt Service = total annual loan principal + interest payments
DSCR ≥ 1.0 = income covers debt; DSCR < 1.0 means negative cash flow after debt
Worked Example
$120,000 gross income, $40,000 expenses, $50,000 annual debt service
Did you know? SBA 7(a) loans require a minimum DSCR of 1.15x, while most commercial real estate lenders require 1.20–1.35x. A higher DSCR signals financial safety margin to lenders.
Sources
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