Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. It is calculated by dividing net operating income by total debt service (which includes both principal and interest payments). A DSCR of less than 1.0 means negative cash flow, indicating that a business doesn't generate enough income to cover its debt payments. Lenders typically look for a minimum DSCR of 1.2 to 1.4 when evaluating loan applications, as this provides a cushion in case of unexpected financial difficulties.