accounting
DSCR (Debt Service Coverage Ratio)
DSCR is net operating income divided by total debt service, it tells a lender whether your business generates enough cash to cover its loan payments.
Last updated Reviewed by ICG Funding
Definition
What it means.
DSCR is calculated as net operating income (NOI) divided by annual principal and interest payments. A DSCR of 1.25 means the business earns 25% more than required to cover debt service.
SBA 7(a) loans generally require a projected DSCR of 1.15 or better. Conventional commercial loans typically look for 1.25–1.35. Revenue-based funding does not use DSCR in the traditional sense, it uses a holdback or fixed ACH sized to daily cash flow.
Example
NOI of $125,000 / annual debt service of $100,000 = DSCR of 1.25.
Now what?
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