Debt Service Coverage Ratio (DSCR)
How comfortably a borrower can cover its loan payments from cash flow, measured as cash flow available for debt service divided by total debt service.
DSCR = Cash Flow Available for Debt Service / Total Debt Service (principal + interest)
DSCR is the single most-cited number in a credit decision because it answers the question a lender actually cares about: can this borrower pay us back out of the cash the business or property generates? A DSCR of 1.00x means cash flow exactly equals the debt payments, with nothing to spare. Most commercial lenders look for a cushion, often a 1.20x to 1.25x minimum, so that a bad quarter does not put the loan into default.
What goes in the numerator depends on the credit. For an operating company it is usually EBITDA or UCA cash flow adjusted for owner distributions and non-recurring items. For income property it is net operating income (NOI). A global DSCR rolls the guarantor and related entities into the same calculation, which is where a deal that looks fine on its own can fall apart.
DSCR is most powerful next to debt yield and loan-to-value: DSCR tests repayment, LTV tests collateral cushion, and debt yield strips out the financing assumptions that can flatter both.
Turn Definitions Into Decisions
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