Debt Service Coverage Ratio (DSCR) compares cash flow to debt service. For many bank products, lenders look for coverage at or above ~1.20–1.25×, but thresholds vary by product and risk.
Formula
- Monthly DSCR = Monthly NOI (or EBITDA proxy) ÷ Monthly Total Debt Service
- Annual DSCR = Annual NOI ÷ Annual Total Debt Service
What counts as cash flow?
Underwriters typically normalize net income, add back interest and non‑cash charges, and adjust for owner compensation and one‑offs. Deposit stability, seasonality, and variance matter—especially for cash‑flow based programs.
Quick examples
- NOI $12,000; monthly debt service $10,000 → DSCR = 1.20×
- NOI $9,000; debt service $10,000 → DSCR = 0.90× (below many bank thresholds)
What lenders look for
- Stability of deposits and variance
- Debt profile (amortizing vs daily/weekly remittance)
- Post‑funding DSCR including the new obligation
FAQs
FAQ
Is DSCR the only factor?
No. Lenders also consider time in business, deposits, credit, collateral, and industry risk.
What if my DSCR is below 1.20x?
You may still qualify for other products (e.g., cash-flow programs) if deposits are stable and variance is manageable.
Do lenders look at post-funding DSCR?
Yes. They assess your ability to service new payments alongside existing obligations.