Understanding DSCR

The Debt Service Coverage Ratio is the gold standard for measuring leverage risk in commercial lending. It tells you whether a business or income property generates enough cash to cover its debt payments. While residential mortgages rely on personal income, commercial loans are approved based on the asset's own ability to cover its debts — and DSCR is how lenders measure that.

With the defaults on this page, the company earns $180,000 in gross operating income, spends $45,000 on operating expenses, and carries $90,000 in total annual debt service. That produces a Net Operating Income of $135,000 and a DSCR of 135,000 ÷ 90,000 = 1.50x — comfortably above the 1.25x threshold most lenders require.

DSCR Benchmarks

Below 1.0x: cash-flow negative; the operation cannot cover its debt payments. 1.0–1.2x: marginal — most lenders will decline or require additional equity. 1.2–1.4x: generally acceptable; some lenders require 1.25x minimum. Above 1.4x: strong coverage with a healthy buffer against vacancies and expense shocks.