Debt Service Coverage Ratio is the single most important metric for commercial real estate loans. Here is exactly how to calculate it and what lenders want to see.
If you are applying for a commercial real estate loan or refinancing an investment property, the term DSCR will come up constantly. Lenders treat it as the single most important measure of whether a property can safely service the proposed debt.
The DSCR Formula
DSCR = Net Operating Income (NOI) ÷ Annual Debt Service. Net Operating Income is your gross rental income minus all operating expenses (property management, taxes, insurance, maintenance, vacancy allowance) but before mortgage payments. Annual Debt Service is your total annual principal and interest payments on the proposed loan.
What Lenders Want to See
- DSCR 1.25+: Standard minimum for most commercial lenders
- DSCR 1.35+: Required for SBA 504 loans
- DSCR 1.50+: Preferred range for the best rates and highest LTV approval
- DSCR below 1.0: Property loses money — most lenders will decline
How to Improve Your DSCR Before Applying
You can improve DSCR by increasing NOI (raising rents, reducing vacancy, cutting operating costs) or by reducing debt service (larger down payment, longer amortization, lower rate). Even small rent increases have a significant multiplied effect on DSCR when you are near the lender's threshold.
Tip: Run DSCR calculations at multiple rate scenarios (+1%, +2%) before applying. This protects you if rates move or if you need to switch lenders mid-process.
Ready to find the right funding for your business?
Get matched with lenders in minutes. No hard credit pull to start.
Get My Loan Offers