DEBT SERVICE COVERAGE RATIO

DSCR

DSCR, or Debt Service Coverage Ratio, is a financial metric used to assess a borrower's ability to service (pay) their debt. A higher DSCR is better as it indicates the borrower has more money to pay debt.


DSCRInterpretation

0.00

The borrower does not generate enough income to cover debt payments.
The borrower is just able to cover their debt obligations.

2.00+

The borrower generates more income than needed to cover debt payments.

Required Debt Service Coverage Ratio

The Debt Service Coverage Ration (DSCR) is an important component of the underwriting process. However, it is not the sole determining factor. Underwriters also consider credit scores, industry trends, management experience, business strength, cash flow stability, and other relevant factors when evaluating a loan application. For this reason, the required DSCR is tailored to each borrower’s unique circumstances.


Calculating the Debt Service Coverage Ratio

Calculating the Debt Service Coverage Ratio (DSCR) can be complicated. This tool is intended to provide general guidance on potential qualification and eligibility. When calculating DSCR, the formula begins with operating cash flow, which is then adjusted for various factors, including:

Operating Cash Flow Adjustments
  • Non-recurring income
  • Expenses and distributions
  • Unfunded capital expenditures
  • Distributions for S-Corp taxes
  • Other relevant items
The goal is to isolate the cash generated by the business's core operations, providing a more accurate and consistent measure of its ability to cover debt payments and operating expenses.

DSCR Formula

The DSCR is calculated by dividing the business's Operating Cash Flow* (OCF) by its new Loan Payment.

DSCR = Operating Cash Flow* (OCF)Loan Payment


OCF = Earnings Before Interest, Taxes,
Depreciation, and Amortization (EBITDA)
*with additional adjustments as described above



DSCR Calculator

Our DSCR calculator simplifies the process of assessing your financial situation. By inputting the following, you can quickly estimate your DSCR. This tool not only helps you understand your current financial position but also aids in making strategic decisions about borrowing, investing, and managing expenses.

For the calculation, use the most recent tax return for your business.


DSCR Calculator

Cash Flow Calculation

Income Before Tax:

Depreciation:

Amortization:

Other Adjustments:

Operating Cash Flow



Loan Calculation

Requested Loan Amount:

Loan Term in Years:

Interest Rate:

Monthly Loan Payment

Annual Loan Payment



Estimated DSCR: