CRE Tool Hub

DSCR Calculator

Calculate Debt Service Coverage Ratio. Check if you meet lender requirements.

Loan Details

$

Annual income after all operating expenses.

$

Total annual loan payments (principal + interest).

DSCR

1.25x

NOI / Debt Service

Your DSCR of 1.25x meets industry standards.

Below 1.0xNegative Cash Flow
1.0x - 1.20xHigh Risk
1.25xStandard Minimum
Above 1.35xStrong Coverage

Next Step: Do you qualify for an SBA Loan?

Check SBA 7(a) Eligibility →

Next Step Analysis

Calculate Loan-to-Value (LTV) → Check your equity coverage. Lease Buyout

💡 Pro Tip: Lenders typically require a 1.25x DSCR minimum, but loan terms (like interest rate) improve significantly at 1.35x and above. Consider putting 5-10% more down to reach better coverage ratios and secure lower financing costs.

Understanding Debt Service Coverage Ratio (DSCR)

The Debt Service Coverage Ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. The ratio states net operating income as a multiple of debt obligations due within one year, including interest and principal. It is the primary benchmark lenders use to determine if a property generates enough income to pay for itself.

Most commercial lenders require a minimum DSCR of 1.25x. This means the property's Net Operating Income (NOI) must be at least 125% of the annual mortgage payment. This 25% "cushion" protects the lender: even if NOI drops slightly or expenses rise, the borrower should still be able to make loan payments without default.

Lender DSCR Requirements

Property Type Minimum DSCR Why?
Multifamily 1.20x - 1.25x Stable, predictable cash flow.
Commercial (Retail/Office) 1.25x - 1.35x Higher vacancy risk if a tenant leaves.
Self-Storage/Industrial 1.25x Generally stable operations.
Hotels/Hospitality 1.40x - 1.50x Volatile daily income requires larger cushion.

Frequently Asked Questions

How does DSCR affect loan approval?
DSCR is often the deal-breaker. If a property has a DSCR below the lender's minimum (e.g., 1.25x), the loan will be denied or the loan amount reduced until the ratio improves. Lenders view DSCR as non-negotiable because it directly measures the safety of their interest payments.
Why is 1.25 the industry standard?
A 1.25x DSCR means there is 25% surplus cash flow after paying the mortgage. This margin of safety is generally accepted by banks as sufficient to handle minor market fluctuations, vacancy spikes, or unexpected maintenance costs without defaulting on the loan.
How can I improve my DSCR?
You have two levers: 1) Increase NOI (raise rents, add fee income, reduce expenses), or 2) Reduce Debt Service (request a longer amortization period, find a lower interest rate, or pay down principal/put more money down). Increasing the down payment is the most common way to fix a low DSCR loan application.