DSCR: Will Your Loan Get Approved?

What Is Debt Service Coverage Ratio (DSCR)?

DSCR measures whether your business generates enough income to cover its debt payments. Lenders use it as a primary qualification metric.

Formula: DSCR = Net Operating Income / Total Annual Debt Service

What Lenders Look For

| Lender Type | Minimum DSCR | |-------------|-------------| | SBA 7(a) | 1.25+ | | Conventional bank | 1.50+ | | Alternative/online | 1.0–1.25 |

• DSCR < 1.0 — Your business can't cover its debt. Loan will be denied.
• DSCR 1.0–1.24 — Technically covering debt, but too tight for most lenders.
• DSCR 1.25+ — Meets SBA requirements. Good position.
• DSCR 1.50+ — Strong. Qualifies for most conventional loans.

How to Improve Your DSCR

1. Increase revenue — The most direct path. Even a 10% revenue bump can move your DSCR significantly.
2. Reduce operating expenses — Cut non-essential costs to increase NOI.
3. Extend loan term — A longer term reduces annual payments, improving DSCR (though you'll pay more interest over time).
4. Lower interest rate — Shop rates from multiple lenders, or consider SBA loans which often have competitive rates.
5. Pay down existing debt — Reducing current obligations increases the room for new debt.

Maximum Loan Amount

This calculator reverse-engineers the maximum loan you can take while maintaining a 1.25 DSCR. This is your borrowing capacity ceiling for SBA 7(a) loans.

What Is Net Operating Income?

NOI is your business revenue minus all operating expenses — but before debt payments, taxes, depreciation, and amortization. It represents the cash your business generates from operations alone.

Connect to Your Bigger Picture

Your DSCR directly connects to your loan payments and cash flow. Before applying for financing, make sure your cash flow forecast shows you can maintain this DSCR over the full loan term — not just today.