accounting
Net Operating Income (NOI)
Net operating income is revenue minus operating expenses, before debt service, taxes, depreciation, and amortization.
Definition
What it means.
NOI is the core figure used to calculate DSCR. It represents the cash a business generates purely from operations, before the financing structure (interest and principal) is layered in. Unlike EBITDA, NOI does not add back depreciation or amortization, making it a more conservative cash flow measure.
SBA and conventional lenders calculate NOI from the business tax return: gross revenue minus operating expenses (including owner-reasonable compensation). Lenders then divide NOI by annual debt service to get DSCR. A business that shows a loss on paper (due to depreciation or owner add-backs) may still show strong NOI for lending purposes.
Example
A trucking company generates $800K in revenue. After operating expenses (fuel, driver pay, insurance, maintenance) of $620K, NOI is $180K. Annual debt service is $120K. DSCR = 180/120 = 1.50.
Now what?
Get an offer that accounts for net operating income (noi).
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