Calculate your debt service coverage ratio (DSCR) — the metric lenders use to decide whether your business cash flow can comfortably support a new loan. Most lenders require a DSCR of 1.15× or higher.
Frequently Asked Questions
What is DSCR?
Debt Service Coverage Ratio = Net Operating Income ÷ Annual Debt Service. It measures how many times your cash flow covers your loan payments.
What is a good DSCR?
1.25× or higher is preferred by most lenders. 1.15× is typically the minimum for SBA 7(a). Below 1.0× means cash flow does not cover debt and the loan will likely be declined.
What counts as Net Operating Income?
Revenue minus operating expenses, before interest, taxes, depreciation, and amortization (essentially EBITDA), with adjustments for one-time items and owner add-backs.
What counts as Annual Debt Service?
Total principal + interest payments on all business debt over a 12-month period, including the new loan you're applying for.
How does DSCR differ for real estate vs. business loans?
Real estate DSCR uses property NOI ÷ debt service. Business DSCR uses business NOI. Both target 1.20–1.25× minimum; some real estate lenders accept 1.10×.
Why do lenders require a DSCR above 1.0?
A cushion ensures the borrower can still pay debt during revenue dips, unexpected expenses, or interest-rate increases on variable-rate loans.
Can I improve my DSCR?
Yes — raise NOI (revenue or margin), reduce debt service (refinance to longer term or lower rate), or pay down existing debt before applying for new financing.
Does DSCR include personal income?
Standard DSCR is business-only. Some small business lenders use Global DSCR, which adds personal income and personal debt for owners with significant personal cash flow.
Is a 2.0× DSCR good?
Excellent — it means cash flow is twice annual debt service, which qualifies for best rates and may allow larger loan amounts.
Where do lenders pull NOI from?
Business tax returns (Schedule C, 1120, 1120-S, 1065), business financial statements, and bank statements. Lenders verify with at least 2 years of tax returns for larger loans.