DSCR calculator

Debt service coverage ratio, also called debt coverage ratio, debt service ratio, or loan coverage ratio. Is the number a lender actually cares about: not whether the business is profitable in general, but whether its income covers this specific loan payment, with enough cushion to survive a bad month.

"Debt service coverage ratio," "debt coverage ratio," "debt service ratio," and "loan coverage ratio" are used interchangeably in lending. All four refer to the exact same calculation, net operating income divided by annual debt service. Different lenders, loan programs, and regions favor different shorthand, but none of the naming variation changes the formula, the inputs, or the number it produces.

Annual debt service is the full yearly cost of the loan: principal plus interest, for an amortizing loan, not just the interest portion. A DSCR of 1.25x means net operating income covers the loan payment 1.25 times over, a 25% cushion above break-even on the debt itself.

For a business (as distinct from a rental property, where NOI has its own real-estate-specific definition: see the rental property DSCR guide for the PITIA-based formula lenders actually use there), net operating income is generally revenue minus operating expenses, calculated before interest, loan principal, and often before taxes, the income available to service debt, not the income left over after already paying for debt. Lenders differ in exactly how they treat items like depreciation, owner compensation add-backs, and one-time expenses, so the number reported on a tax return often needs adjusting before it matches what a specific lender will actually use in their own DSCR calculation.

Many lenders effectively use EBITDA as their NOI proxy: starting from revenue, subtracting cost of goods sold and operating expenses, then adding depreciation and amortization back in, since those are non-cash charges that don't affect the actual cash available to make a loan payment. A business with $600,000 in revenue, $180,000 in COGS, $210,000 in operating expenses, and $25,000 in depreciation has an NOI of $600,000 − $180,000 − $210,000 + $25,000 = $235,000. Noticeably higher than net income alone would show, precisely because the depreciation add-back restores cash that left the P&L but never left the bank account.

These are general ranges, not fixed rules, the specific minimum a given lender requires depends on the loan program, the borrower's overall financial profile, and how much collateral or personal guarantee backs the loan. A DSCR just above a lender's stated minimum isn't automatic approval, and a DSCR just below it isn't automatic rejection, it's one input into a broader underwriting decision. A lender's paperwork may label this the "loan coverage ratio" or "debt coverage ratio" minimum rather than DSCR by name, the same threshold applies regardless of which term the specific document uses.

This is a different cut of the same information as the table above, instead of the minimum by loan program, it's roughly how a lender tends to read any given DSCR value regardless of which program it's for. The two are worth checking against each other: a 1.20x DSCR is "standard" in general, but still below minimum for a loan program requiring 1.25x specifically.

Run the formula in reverse to answer a different, often more useful question: not "what's my DSCR on this loan" but "how large a loan can my income actually support." At $90,000 NOI and a 1.25x target DSCR, maximum annual debt service is $90,000 ÷ 1.25 = $72,000, or $6,000 a month, which, amortized at 8.5% over 10 years, supports a loan of roughly $483,900. That figure is the practical ceiling worth knowing before applying for a specific loan amount, not after.

Many lenders don't take a borrower's own DSCR calculation at face value. They re-run it under more conservative assumptions to see whether the loan still clears their minimum with less favorable inputs. Common adjustments: applying a higher interest rate than the actual quoted rate (to account for the loan resetting or rates rising later), discounting reported NOI by a percentage to build in a margin for error, or excluding certain add-backs a borrower included in their own calculation. A DSCR that looks comfortably above 1.25x on a borrower's own numbers can come in tighter, or even below the minimum, once a lender applies its own stress test. Worth running the calculator above with a deliberately higher rate or lower NOI to see how much cushion actually exists before relying on the best-case number.

Interest coverage ratio (ICR), sometimes called interest service coverage ratio. Measures NOI against interest expense only, leaving principal repayment out entirely, a looser, more forgiving metric than DSCR, since principal is usually the larger part of a loan payment. On the $400,000, 8.5%, 10-year loan above, first-year interest alone is roughly $32,980, giving an ICR of $90,000 ÷ $32,980 ≈ 2.73x. Dramatically higher than the 1.51x DSCR on the same loan, purely because principal repayment is excluded. Lenders evaluating an amortizing business term loan almost always use DSCR, not ICR, specifically because it captures the full cash cost of the loan; ICR shows up more often in bond covenants and interest-only financing structures, where principal isn't being repaid on the same schedule.

For a small business loan backed by a personal guarantee (common for SBA loans and many conventional term loans), lenders often calculate a "global DSCR" that combines the business's NOI and debt service with the guarantor's personal income and personal debt obligations, rather than evaluating the business in complete isolation. A business with a DSCR just below a lender's minimum on its own can sometimes still qualify if the owner's personal financial position is strong enough to bring the combined, global figure above the threshold, and conversely, a healthy business DSCR can be undermined by heavy personal debt held by the guarantor. Worth confirming early in a loan application whether a lender is evaluating the business DSCR alone or a global figure, since the inputs that matter are different.

SBA 7(a) loans illustrate this as two separate, stacked tests rather than one number: roughly 1.15x on the business alone, and separately, a minimum of 1:1 once the guarantor's personal income and debt are folded into the global calculation. Clearing the business-only minimum doesn't guarantee clearing the global one. Both thresholds have to hold.

A full-year DSCR can look perfectly healthy for a business with genuinely seasonal income while hiding a real problem: months where NOI alone doesn't cover that month's debt service, even though the annual average does. A landscaping business earning most of its NOI in six months a year can have an excellent full-year DSCR while running a cash shortfall every winter month, if the loan payment doesn't flex with the season. Some lenders offer seasonal or step-down payment structures specifically for this reason. Worth raising directly if a business's income is genuinely lumpy, since a standard level-payment loan sized against average annual DSCR can still create a real cash problem in the low months, the same seasonal-mismatch issue covered on the runway calculator's seasonal-revenue section.

DSCR moves from either side of the ratio. Raising income and shrinking debt service are equally valid levers, and the cheaper one to pull depends entirely on the business.

DSCR and break-even are close cousins. Both are coverage ratios, just measuring coverage of different things. Break-even asks whether revenue covers total costs; DSCR asks specifically whether operating income covers debt service. A business well above its break-even point can still carry a weak DSCR if debt service is large relative to its margin, and a business near break-even can sometimes carry surprisingly healthy debt coverage if fixed costs are mostly non-debt items. Lenders reviewing a loan application often want to see both, a break-even analysis that demonstrates the underlying business model works, alongside a DSCR that demonstrates this specific loan is affordable on top of it.

Calculate your own DSCR above, free, or see how it connects to your break-even point and runway.