DSCR Calculator: Debt Service Coverage Ratio
The debt service coverage ratio tells lenders whether your business earns enough to cover its loan payments. Calculate yours and see how much debt your business can support.
Business cash flow
Use your last 12 months or your tax return. Example numbers are filled in.
Money taken out for the owner that is not already counted as a salary expense. Lenders expect owners to be paid.
EBITDA for an operating business, or net operating income (NOI) for a rental property.
Debt payments
Include equipment loans, leases, lines of credit and vehicle loans. Leave out any loan the new loan will pay off.
New loan
Ask your lender. 1.20x to 1.25x is common.
Estimates only. Lenders adjust cash flow in their own way and may also look at personal income, collateral and credit. Assumes a fully amortizing loan with fixed monthly payments. This calculator runs in your browser and does not store or send your information. Not financial, lending or tax advice.
How to calculate DSCR
DSCR = net operating income ÷ total annual debt service
Net operating income
Revenue minus operating expenses, before interest and taxes. Many lenders use EBITDA, and some adjust it for owner compensation.
Total annual debt service
All principal and interest payments due on business debt over the year, including the proposed new loan.
Example: a business has net operating income of $180,000 and pays $12,000 a month ($144,000 a year) on its loans. Its DSCR is $180,000 ÷ $144,000 = 1.25.
What DSCR do lenders require?
| DSCR | What it means |
|---|---|
| Below 1.00 | The business does not earn enough to cover its debt payments. |
| 1.00 to 1.19 | Breaking even on debt, with no cushion. Hard to borrow. |
| 1.20 to 1.49 | Meets the typical minimum for many banks and SBA lenders. |
| 1.50 or higher | Strong. Better terms and more borrowing capacity are likely. |
How much can your business borrow?
Divide your net operating income by the lender’s minimum DSCR to find the maximum annual debt service you can support. With $180,000 of net operating income and a 1.25 minimum, the maximum is $144,000 a year in total loan payments, or $12,000 a month.
- Increase net operating income by raising prices, cutting costs or growing revenue.
- Refinance into a longer term to reduce annual payments.
- Pay off or consolidate expensive short-term debt such as merchant cash advances.
- Present clean, normalized financial statements so lenders see your true earnings.
Preparing for a loan or refinancing?
Foxboro Consulting Group prepares financial forecasts and valuations that lenders and investors rely on.
