DSCR (Debt Service Coverage Ratio)

Category: finance

A benchmark financial metric measuring a business’s cash flow capacity to cover its total annual debt obligations.

DSCR is calculated by dividing Net Operating Income (NOI) by total annual debt service (principal and interest payments). A DSCR of 1.0 means a business breaks exactly even. Commercial underwriters typically require a minimum DSCR of 1.25 to provide a safety margin against cash flow volatility.

Common Examples

• The commercial lender approved the mortgage after verifying that the shopping center maintained a stable DSCR of 1.35.
• Our underwriting department models an increased vacancy rate to verify if the borrower’s DSCR will drop below the 1.20 covenant limit.