Your debt service coverage ratio is the first thing a commercial lender looks at, and this free DSCR calculator shows you where you stand. Enter your net operating income and your annual debt service, and you will get your DSCR instantly.
DSCR answers one question the bank cares about most: does the property produce enough income to comfortably cover the loan payment? If it does not, the loan does not happen, or it gets smaller. Here is the tool, then the formula and the numbers lenders want.
DSCR, in one line: debt service coverage ratio is your net operating income divided by your annual debt service. A 1.25 DSCR means the property earns 1.25 times its loan payment.
What lenders want: most commercial lenders look for a DSCR of at least 1.20 to 1.25 on a stabilized property. Below 1.0 means the income does not cover the debt.
The DSCR Formula
The formula is DSCR = net operating income ÷ annual debt service. NOI is your income after operating expenses but before the loan. Annual debt service is your total principal and interest payments for the year.
Here is an example. A property produces $130,000 of NOI and your annual loan payment is $100,000. Your DSCR is $130,000 divided by $100,000, or 1.30. That means the property earns 30% more than it needs to cover the loan, which most lenders are comfortable with.
What DSCR Lenders Look For
A DSCR of 1.0 is the break-even line, where income exactly covers the payment and there is no cushion. Most commercial lenders want to see at least 1.20 to 1.25, and some want more on riskier property types. The higher your DSCR, the more comfortable the lender and often the better your terms.
DSCR also drives how big a loan you can get. Lenders frequently size the loan so the payment keeps DSCR at their minimum, which means your NOI, not just the property value, sets your loan amount. If you want a bigger loan, grow the NOI. I get into how debt coverage is squeezing deals in the current rate environment below.
Watch: Debt Service Coverage Ratios Are Kicking In
DSCR Calculator FAQ
How do you calculate DSCR?
Divide net operating income by annual debt service. If NOI is $130,000 and your annual loan payment is $100,000, the DSCR is 1.30.
What is a good DSCR?
Most commercial lenders want at least 1.20 to 1.25 on a stabilized property. A DSCR of 1.0 is break-even, and higher is safer for both you and the lender.
What does a DSCR below 1.0 mean?
It means the property's income does not fully cover the loan payment, so you would have to cover the shortfall out of pocket. Most lenders will not approve a loan that puts DSCR below 1.0.
Does DSCR use NOI or cash flow?
DSCR uses net operating income, which is before debt service, divided by the debt service itself. It measures whether the property's operating income covers the loan.
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Explore CRE CentralDSCR starts with a clean NOI, so run yours through the NOI calculator first, then see all the commercial calculators.