DSCR Calculator

Understanding Your Debt Service Coverage Ratio

Debt Service Coverage Ratio tells lenders one thing: can your business comfortably make loan payments? It is calculated by dividing your annual Net Operating Income by your total annual debt payments. A ratio of 1.0 means you break even. Anything above 1.0 means you have income left over after paying your debts.

Most lenders want to see a DSCR of at least 1.15 to 1.25, depending on the loan type. SBA 7(a) loans typically require 1.15 or higher. Bank term loans generally look for 1.20 to 1.35. Online lenders and lines of credit may accept ratios as low as 1.0 if your other financials are strong. Equipment financing often focuses more on the asset value than on DSCR.

DSCR Benchmarks by Loan Type

How to Improve Your DSCR

If your ratio falls below lender thresholds, you have three levers. First, increase your Net Operating Income by growing revenue or cutting operating costs. Second, reduce existing debt payments by refinancing to longer terms or lower rates. Third, adjust your proposed loan: borrow less, extend the term, or phase the financing over time. Use our loan payment calculator to model different scenarios and see how each one affects your monthly payment.

A strong DSCR can sometimes offset weaknesses in other areas of your application. If your credit is fair but your business generates twice the income needed to cover payments, many lenders will look past the credit score. Similarly, businesses with shorter operating histories but strong cash flow can qualify for products that would otherwise require more time in business.

If your DSCR is below 1.0, traditional term loans may not be available, but you still have options. Asset-based lending evaluates your collateral rather than income ratios. Invoice factoring and revenue-based financing look at different metrics entirely. Take our Loan Finder Quiz to see which product fits your current situation.