DSCR Calculator
1.25x
Formula: NOI / Debt Service
Formula: DSCR = Net Operating Income (NOI) ÷ Total Debt Service
- Base DSCR: 1.25x
- If NOI changes: -10% → 1.13x | +10% → 1.38x
- If Debt changes: -10% → 1.39x | +10% → 1.14x
🏦 Lender Requirements
Your DSCR of 1.25x meets industry standards for most commercial loans.
- Below 1.0x: Not enough income to cover debt (won't qualify).
- 1.0x - 1.15x: Risky, most lenders won't approve.
- 1.25x: Minimum for most commercial lenders (industry standard).
- 1.35x - 1.50x: Strong coverage, favorable loan terms likely.
- Above 1.50x: Excellent coverage, best rates available.
💡 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 DSCR
Want a deeper dive? Read our Complete Guide to DSCR for Commercial Loans.
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 a popular benchmark used in the measurement of an entity's (person or corporation) ability to produce enough cash to cover its debt payments.
Why 1.25 is the Standard
The industry standard minimum DSCR for most commercial properties is 1.25x. This means the property's NOI must be 125% of its annual debt payments. This 25% buffer gives the lender confidence that the loan will be paid even if performance dips slightly.
Frequently Asked Questions
DSCR is one of the most critical metrics lenders use to underwrite a commercial loan. It directly measures the property's ability to generate enough income to cover its debt payments. Most lenders have a strict minimum DSCR, typically 1.25x, and a property that falls below this threshold will likely be denied financing.
A DSCR of 1.25x means the property's Net Operating Income is 125% of its total debt service. This 25% cushion provides the lender with a margin of safety. It ensures that even if income decreases or expenses increase unexpectedly, the property can still comfortably make its loan payments, reducing the risk of default for the lender.
There are two ways to improve DSCR: increase NOI or decrease debt service. You can increase NOI by raising rents, reducing vacancy, or cutting operating expenses. You can decrease debt service by making a larger down payment (reducing the loan amount), securing a lower interest rate, or extending the loan's amortization period.