Debt Service Coverage Ratio Calculator
Calculate the Debt Service Coverage Ratio (DSCR) to assess the ability of a borrower to pay their debt obligations. DSCR measures how many times annual income covers annual debt payments.
Annual Income
Annual Debt Service
DSCR Results
Debt Service Coverage Ratio:
0.00x
Annual Income:
$0
Annual Debt Service:
$0
Risk Assessment
Credit Quality:
N/A
Default Risk:
N/A
Lending Decision:
N/A
Cash Flow Analysis
Excess Coverage:
$0
Coverage Margin:
0.00x
Cash Flow Strength:
N/A
Understanding Debt Service Coverage Ratio
The Debt Service Coverage Ratio (DSCR) measures the ability of a borrower to pay their debt obligations. It compares annual income to annual debt service payments, indicating how many times the income covers the debt payments.
DSCR Formula
Basic Formula
- DSCR = Net Operating Income / Annual Debt Service
- Annual Debt Service = Principal + Interest
- Expressed as a ratio (e.g., 1.5x)
- Higher ratio indicates better coverage
Example Calculation
- NOI: $150,000
- Debt Service: $100,000
- DSCR: $150,000 / $100,000 = 1.5x
- Income covers debt 1.5 times
DSCR Interpretation
DSCR Ranges and Risk Levels
Understanding DSCR values and their implications
Strong Coverage (1.5x+)
- Excellent debt service ability
- Low default risk
- Attractive to lenders
- Strong cash flow position
Adequate Coverage (1.25x-1.5x)
- Good debt service ability
- Moderate default risk
- Acceptable for most lenders
- Stable cash flow
Weak Coverage (1.0x-1.25x)
- Marginal debt service ability
- Higher default risk
- May require additional covenants
- Limited financial flexibility
Insufficient Coverage (<1.0x)
- Unable to service debt
- High default risk
- Unlikely loan approval
- Requires restructuring
Applications by Industry
| Industry | Typical DSCR Range | Key Considerations |
|---|---|---|
| Commercial Real Estate | 1.25x - 2.0x | Property type, location, lease terms |
| Corporate Lending | 1.5x - 3.0x | Business cycle, industry risk |
| Project Finance | 1.25x - 1.5x | Construction risk, completion guarantees |
DSCR Components
Net Operating Income
- Revenue minus operating expenses
- Before debt service and taxes
- Recurring and stable income
- Normalized for sustainability
Annual Debt Service
- Principal and interest payments
- Scheduled debt obligations
- May include lease payments
- Current year requirements
DSCR Limitations
Static Nature
- Point-in-time measurement
- Doesn't account for variability
- Assumes constant income
- Ignores future changes
Accounting Issues
- NOI calculation subjectivity
- Non-cash expenses
- Revenue recognition
- Off-balance sheet items
DSCR in Loan Agreements
Maintenance Covenants
- Minimum DSCR requirements
- Ongoing compliance testing
- Quarterly or annual reporting
- Default triggers
Incurrence Covenants
- Additional debt restrictions
- Dividend limitations
- Capital expenditure controls
- Based on projected DSCR
Improving DSCR
Increase Income
- Revenue growth strategies
- Cost reduction programs
- Asset optimization
- Efficiency improvements
Reduce Debt Service
- Debt refinancing
- Principal prepayments
- Interest rate swaps
- Extended maturities
Key Takeaways for DSCR Calculator
- DSCR = Net Operating Income / Annual Debt Service measures ability to pay debt obligations
- DSCR of 1.25x or higher is typically required for most commercial loans
- Higher DSCR indicates lower default risk and stronger credit quality
- DSCR is used by lenders to assess loan risk and set loan terms
- DSCR requirements vary by industry, loan type, and economic conditions
- The calculator helps borrowers understand their debt service capacity
- DSCR is a key metric in loan covenants and financial covenants
- Use the calculator to evaluate loan affordability and refinancing opportunities